1.1.4 Production Possibility Frontiers

Question 1

What does PPF stand for?

Answer 1

Production Possibility Frontier

Question 2

What is a PPF

Answer 2

A PPF shows the different number of combinations of goods and services which can be produced if all resources are fully and efficiently utilised.

Question 3

Define Productive efficiency

Answer 3

This is maximised input eg - utilising your full capacity to do your homework.

Question 4

Define Allocative Efficiency

Answer 4

An efficient market whereby all goods and services meet the needs and wants of society.

Question 5

Define Economic Growth

Answer 5

This is a rise in a country’s productive capacity causes the PPF to shift out from PPF1 to PPF2 and this then allows increased supply both goods.

Question 6

What can supply side policies do for PPF diagrams?

Answer 6

This can help to bring about an outward shift of the country’s PPF diagram. This means that the country will experience an economic growth.

Question 7

Define Capital goods

Answer 7

These are goods that are used to make consumer goods and services.

Capital inputs include fixed plant and machinery, hardware, software, new factories and other buildings.

Question 8

Define Consumer goods and services

Answer 8

These are goods and services which satisfy our needs and wants directly.

Question 9

What divisions can you put Consumer goods and services into?

Answer 9

1) Consumer durables - Products that provide a steady flow of satisfaction / utility over their working life eg - washing machine, smartphone.

2) Consumer non-durables - Products that are used up in the act of consumption eg - drinking coffee or turning on heating.

3) Consumer services - A hair cut or ticket to a show.

Question 10

What are the causes of outward shifts in the Production Possibility Frontier?

Answer 10

• Higher productivity / efficiency of factor inputs.
• Better management of factor inputs.
• Increase in the stock of capital and labour supply.
• Innovation and invention of new product and resources.
• Discovery / extraction of new natural resources.

Question 11

What does higher productivity do?

Answer 11

Increases the output per unit of input used in production.

Question 12

What does better management of factor inputs do?

Answer 12

Reduces waste and improves quality

Question 13

What does an increase in the stock of capital and labour supply do?

Answer 13

Increases capital investment from inward labour migration.

Question 14

What does an innovation and invention of new products and resources do?

Answer 14

Improved production processes helps to boost efficiency.

Question 15

What does discovery or extraction of new natural resources do?

Answer 15

Discovery of commercially viable land inputs drives extraction.

Question 16

What are the causes of an inward shift of a nations PPF diagram?

Answer 16

• Damaging effects of natural disasters - such as drought, a tsunami, an earthquake and severe floods.
• Destruction / loss of factor inputs - caused by civil war and other forms of conflict that last for many years.
• Large scale net outward labour migration - Due to an economic depression that leads to a brain drain of skilled workers.
• A trend decline in the productivity of inputs -possibly caused due to a persistent recession which causes net investment to be negative.