1.1.4 Flashcards
What does the Production possibility frontier (PPF) show?
The maximum potential output combinations of two goods that an economy can achieve when all it’s resources are fully and efficiently employed.
When is economic efficiency achieved?
When resources are used for their best use. At all points on the PPF, resources are allocated efficiently.
What are the three economic agents?
Consumers, producers, and government.
What are capital goods?
Goods that are used to make consumer goods and services
What is automation?
A production technique that uses capital machinery/technology to replace or enhance human labour.
What is the phrase for replacing labour?
Capital-labour substitution
What causes an outward shift in PPF?
-Higher productivity/ efficiency of factor inputs
-Better management of factor inputs
-Increase in the stock of capital and labour supply
-Innovation and invention of new products and resoruces
-Discovery/ extraction of new natural resources
Why does higher productivity/ efficiency of factor inputs cause an outward shift in the PPF?
This increases the output per unit of an input used in production
Why does better management of factor inputs cause an outward shift in the PPF?
Improved management reduces waste and also improves quality.
Why does an increases in the stock of capital and labour supply cause an outward shift in the PPF?
Such as from inward labour migration/ increased capital investment.
Why does innovation and invention of new products and resources cause an outward shift in the PPF?
Improved production processes help to lift efficiency.
Why does does discovery/extraction of new natural resources cause an outward shift in the PPF?
Discovery of commercially viable land drives extraction
What causes an inward shift of PPF?
Caused by a fall in the productive potential of a country
What factors might cause an inward shift on the PPF?
-Damaging effects of severe natural disasters.
-Economic damage caused by war and other types of conflict.
-Large scale net migration of people out a country
-A long-term fall in productivity of labour
What is resource depreciation?
When the productivity/efficiency of resources diminishes with age and also with repeated use when producing goods and services.
