1.1.4 production possibility frontiers Flashcards
what is a PPF
shows the maximum possible combinations of capital and consumer goods that the economy can produce with its current resources and technology
The use of production possibility frontiers to depict:
the maximum productive potential of an economy
any point on the curve
The use of production possibility frontiers to depict:
opportunity cost (through marginal analysis)
interpolate the correct quantity of either consumer/capital goods and then interpolate new quantity difference in quantity of alternate good will be the opportunity cost
The use of production possibility frontiers to depict:
economic growth or decline
curve will shift outwards in periods of growth as maximum possible level of most efficient production will increase as economy has more resources and opposite in economic decline
The use of production possibility frontiers to depict:
efficient or inefficient allocation of resources
efficient allocation will occur on PPF curve (productive efficiency), inefficient allocation will be any point under the PPF (productive inefficiency)
The use of production possibility frontiers to depict:
possible and unobtainable production
unobtainable production will be a point beyond the PPF, and point on the curve is maximum possible production
The distinction between movements along and shifts in production possibility curves, considering the possible causes for such changes
A movement along the curve indicates a change in the combination of goods produced (growth in export industries, economic growth or decline)
A shift of the curve indicates a change in the productive potential of the economy (changes in technology, economic growth or decline)
The distinction between capital and consumer goods
Consumer goods are goods that are demanded and bought by households and individuals
Capital goods are goods that are produced in order to aid the production of consumer goods in the future
