1.1.4 Production Possibility Frontiers

Question 1

Define the PPF

Answer 1

the maximum potential output of two goods or services that an economy can achieve when all its resources are fully and efficiently used, given the level of technology available

Question 2

define efficiency

Answer 2

how effectively an economy is utilising all available resources to produce goods/services

Question 3

explain the concept of trade-offs

Answer 3

producing more of one good necessitates producing less of another

Question 4

define consumer goods

Answer 4

consumer goods provide utility to consumers and are for present use e.g smartphones
a consumer good is wanted for the satisfaction it gives (consumption)

Question 5

define capital goods

Answer 5

a capital good is used to produce other goods or services to increase the future capacity of the economy e.g machinery
a capital good is not wanted for its own sake but for the consumer goods and services it can provide (investment)

Question 6

what is productive efficiency

Answer 6

there is an efficient allocation of resources as all resources are being utilised (any point of the PPF curve)

Question 7

where on the PPF curve is possible production

Answer 7

on or inside the curve

Question 8

where on the PPF curve is unobtainable production

Answer 8

any point outside the curve

Question 9

describe the reason for a point being inside the curve

Answer 9

the economy is being inefficient as it can make more of both goods without incurring an opportunity cost

Question 10

give 5 reasons for being productively inefficient

Answer 10

unemployment, underemployment, empty buildings, underuse of production lines, agricultural fields not used

Question 11

Why may an economy give up consumer goods to increase capital goods output

Answer 11

To enable economic growth in the future as a higher production of capital goods enables more production of both in the future.

Question 12

What is the drawback of increasing production of capital goods

Answer 12

Future economic growth is at the expense of current living standards as consumer goods output has decreased

Question 13

Why does a country’s PPF curve shift right

Answer 13

Economic growth- increase in quality or quantity of factors of production

Question 14

What does a left shift of the PPF curve reflect

Answer 14

There has been economic decline as there is a decrease in potential output of an economy

Question 15

Why would a PPF curve shift left (5 reasons)

Answer 15

Natural disaster
Emigration and therefore loss of labour
Raising school leaving age reducing workforce
Depletion of natural resources
A deep recession resulting in permanent closure of factories

Question 16

Why will a rational decision maker decide on an option

Answer 16

If the marginal benefit exceeds the marginal cost eg if benefit of more tractors outweighs loss of bread output

Question 17

Why does the PPF curve bend outwards

Answer 17

As output of capital good increases, output of consumer goods decreases at a faster rate, the opportunity cost increases
This is because resources are not equally suited to producing both products as some are specialised to capital good production and some are specialised to consumer good production