1.1.4 Production possibility frontiers

Question 1

PPF

Answer 1

Shows the maximum possible combinations of capital and consumer goods that the economy can produce with its current resources and technology.

Question 2

The maximum potential of an economy

Answer 2

Any point on the curve represents the maximum productive potential of the economy, the most that the country can produce.

Question 3

Opportunity cost

Answer 3

The diagram can be used to work out the opportunity cost

Question 4

Economic growth

Answer 4

Economy shows growth when it can produce more of both goods. This growth may be achieved by increasing the quantity and/or quality of resources

Question 5

Economic decline

Answer 5

Less goods can be produced than preciously. This could be caused by a number of factors: natural disasters, natural resources running out, a decrease in quantity/quality of labour, due to war, migration or a fall in spending on education.

Question 6

Efficient or inefficient allocation of resources and possible or unobtainable production

Answer 6

Economic efficiency is achieved when resources are used for their best use. At all points on the PPF, resources are allocated efficiently.

Question 7

Efficiency on curve explanation

Answer 7

Any point on the curve is efficient and possible production.
Points below the curve are possible but inefficient as they are not maximising output
Points beyond the curve are unobtainable production as they don’t have enough resources/technology to produce there.

Question 8

What does a movement along the curve indicate?

Answer 8

A change in the combination of good produced (more capital goods are produced and less consumer goods are produced, or vice versa)

The same amount of resources are allocated amongst the two goods differently

Question 9

What does a shift of the curve indicate?

Answer 9

A change in the productive potential of the economy (more consumer and capital goods can be produced, or less consumer and capital goods can be produced)

This potential output can change because of a change in the number of resources and/or the technology available to the country

Question 10

What are consumer goods?

Answer 10

Goods that are demanded and bought by households and individuals

Question 11

What are capital goods?

Answer 11

Good that are produced in order to aid the production of consumer goods in the future

Question 12

Whats an example of both consumer and capital goods

Answer 12

Computers