1.1.4 Production Possibility Frontiers

Question 1

What does a PPF show?

Answer 1

It shows the different combinations of goods/services which can be produced if all resources are fully and efficiently utilised

Question 2

What does PPF stand for?

Answer 2

Production Possibility Frontiers

Question 3

What does the green curve on the PPF represent?

Answer 3

Any point on the curve represents the maximum productive potential of the economy, the most that the country can produce

Question 4

Work out the opportunity cost moving from A to B

Answer 4

The opportunity cost of producing an extra 15 consumer goods is 30 capital goods.

Question 5

Calculate the opportunity cost giving a numerical answer

Answer 5

• The opportunity cost of producing 1 consumer good is 3 capital goods because
  600/200=3. This means for every 1 consumer good produced, 3 capital goods are lost.
• The opportunity cost of producing one capital good is ⅓ of a consumer good as
  200/600= ⅓. For every 1 capital good produced, ⅓ of a consumer good is lost.

Question 6

What do the purple arrows show on the PPF?

Answer 6

• The purple arrows show that the economy has grown (shift outwards) because it can produce more of both goods.

Question 7

What are the causes of an outward shift of a nation’s PPF?

Answer 7

• The quantity of resources available for production increases, for instance there might be an increase in the number of workers in the economy, or new factories and offices might be built
• There is an increase in the quality of resources, education will make workers more productive whilst technical progress will allow machines and production processes to produce more with the same amount of resources

Question 8

What do the orange arrows show on the PPF?

Answer 8

• The orange arrows show the economy is declining (shift inwards) as it can produce less goods than previously

Question 9

What are the causes of an inward shift on a nation’s PPF?

Answer 9

• War/conflict between countries can destroy economic infrastructure
• Large scale Migration of labourers can cause a huged brain drain of skilled workers
• Persistent recession causing net investment to go negative
• Damaging effects of natural disasters such as drought, a tsunami, an earthquake and severe floods

Question 10

Describe point A

Answer 10

• The economy will aim to produce at point A (or any other point on the curve), this is possible and efficient production.

Question 11

Describe point B

Answer 11

• Point B is possible but inefficient, as they are producing within the curve so not maximising output

Question 12

Describe point C

Answer 12

Point C is unobtainable production, because it is beyond the PPF so they don’t have enough resources/technology to produce there.

Question 13

Describe point D and E

Answer 13

• If the economy decides to use all its resources to produce consumer goods, they can produce at D whilst if they decide to produce only capital goods, they can produce at E.
• Neither of these points are likely.

Question 14

What does the PPF show?

Answer 14

• The diagram shows a fall in capital production but no change in consumer production.
• This shows a fall in efficiency or a change in resources that only affects capital good manufacture

Question 15

What does the PPF show?

Answer 15

• The diagram shows an increase in the ability to produce consumer goods but no change in capital goods which could be due to an improvement in technology that makes production of consumer goods more efficient.

Question 16

What does a movement along the curve of a PPF indicate?

Answer 16

• A change in the combination of goods produced:
• more capital goods are produced and less consumer goods are produced, or vice versa.
• The same amount of resources are allocated amongst the two goods differently.

Question 17

What does a shift of the curve of a PPF indicate?

Answer 17

A change in the productive potential of the economy:

• more consumer and capital goods can be produced or less consumer and capital goods can be produced.
• There has been a change in the number of resources and/or the technology available to the country and so their potential output has changed.

Question 18

What are consumer goods?

Answer 18

Goods that are demanded and bought by households and individuals

Question 19

What are capital goods?

Answer 19

Goods that are produced in order to aid the production of consumer goods in the future.