1.1.4 - Production possibility frontiers Flashcards
What is a PPF?
A PPF shows the maximum productive potential of the economy. It shows the maximum combination of capital and consumer goods that the economy can produce with current resources.
What can PPFs be used for?
The Maximum productive potential of the economy.
The opportunity cost.
Economic Growth or decline. Possible and unobtainable production.
Efficient and Non efficient allocation of resources.
How can the maximum productive potential of the economy be determined?
Any point on the curve represents the maximum productive potential of the economy like x on the PPF
How can opportunity cost be shown on a PPF?
Moving from A to B, the opportunity cost of producing an extra 15 consumer goods is
30 capital goods.
● The opportunity cost of producing 60 capital goods is 20 consumer goods. If they
produced 0 capital goods, then 80 consumer goods could be produced. By producing
60 capital goods, they can only produce 60 consumer goods. Producing these 60
capital goods means they lose 20 consumer goods.
How can economic growth be shown on a PPF?
Economic growth pushes out the PPF this is by increasing the quantity or quality of the factors of production.
How can efficient or inefficient allocation of resources and possible or unobtainable production?
Economic efficiency is achieved when resources are used for their best use. At all points resources are allocated efficiently on the PPF.
Economy aims to produce at point A Point B is inefficient point C is unobtainable don’t have enough resources to produce here.
Point E investing in capital goods D investing in consumer goods.
How can change in production be shown on a PPF?
Diagram shows a fall in capital production but no change in consumer production shows a fall in effiency or change in resources only effecting capital good manufacture
What does movement on a PPF mean?
A movement along the curve indicates a change in the combination of goods produced. More capital goods are produced and less consumer goods produced .
What is a shift on the PPF mean?
A shift on the curve indicates a change in the productive potential of the economy. More consumer and capital goods can be produced or less. This mean their productive potential has increase through improvement in quality and quantity of the resources available to them.
What is the difference between capitals and consumer goods?
Consumer goods are goods that are demanded and bought by households and individuals.
Capital goods are that are produced in order to aid the production of consumer goods in the future. Some goods can be both.
