1.1.4 Production possibility frontiers

Question 1

Allocative efficiency

Answer 1

when the price that consumers are willing and able to pay is equal to the cost pf resources used up in production

Question 2

Capital goods

Answer 2

Goods which are used by producers to produce other goods and services to sell to consumers

e.g. factories, machinery, equiptment

Question 3

Concave production possibility frontier

Answer 3

A concave PPF is “bowed outwards”. This means there is a rising marginal opportunity cost as you produce more of one good

bc there is imperfect factor mobility

e.g. FOP are more suited towards production of one good than another

Question 4

Consumer goods

Answer 4

Goods bought and used by consumers and households

They are the end result of manufacturing

Question 5

Economic efficiency

Answer 5

Making best or optimum use of our scarce resources

so that economic and social welfare can be maximised over time

Question 6

Economic growth

Answer 6

An increase in the productive potential of a country

shown by an outward shift of the PPF

Question 7

PPF

Production possibility frontier

Answer 7

A boundary that shows the combinations of 2 or more goods and services that can be produced using all available factor resources efficiently

Question 8

Productive potential

Answer 8

The amountof output an economy could produce if all of its resources were fully and efficiently employed

Question 9

Trade-off

Answer 9

Choices have to be made between different objectives of policy

e.g. a trade-off between economic growth and inflation

Question 10

Pareto efficiency

Answer 10

An action that harms no one and helps at least one person