1.1.4 Production Possibility Frontiers ✅ Flashcards
What is the PPF?
An economic model that considers the maximin possible production that a country can produce if it uses all factor of production to Produce two goods.
What is a capitol good
Goods that are used to produce other goods eg infrastructure.
Investment in them leads to econ growth.
What is a consumer good?
Goods that have no future productive use, are used to satisfy immediate wants/needs.
What type of good are healthcare equipment?
Capitol as they have future uses.
What type of good is food?
Consumer as they have no use in the future.
What are ppfs used to depict?
- maximin productive potential of an economy
- opotunity cost
- economic growth or decline
- efficient or inefficient allocation of resources.
- possible and unobtainable production.
Name factors of production?
- labour
- capitol
- Enterprise
- Land
What shows the maximin productive potential?
The ppf line show all posssible maxamine productive combinations.
Explain opportunity cost on a ppf? When does opportunity cost occur? What happens if it is steeper?
Determined by type of graph and position.
On PPF
Straight = no opportunity cost
Concave = diminishing returns to scale (opportunity cost increases)
Below PPF
No opportunity cost until hit max production.
Higher opportunity cost.
How does a PPF show economic growth or decline?
Outwards shift of the line = economic growth (higher productive potential)
Inwards shift of the line = economic decline (lower productive potential)
What is static efficiency and what are the two types?
Efficiency at a point in time.
Allocative and productive.
What is allocative efficiency?
Occurs when there is an optimal allocation of resources according to consumer preference.
How should resources be allocated?
To produce goods that consumers get greatest utility from.
Where is allocative efficiency? Do we know exactally where it is? Why?
On the PPF line.
No.
Depends on consumer preference to put an exact point.
What is production efficiency?
Producing a combination of goods when increasing the output of one will decrease the other (on PPF line).
