1.3 Opportunity Cost Flashcards
What is opportunity cost
The opportunity cost of a choice is the value of the next best alternative forgone
What is a trade-off
When one thing is lost to gain something else
What is a production possibility frontier
They depict the maximum productive potential of an economy
How does a PPF depict the maximum productive potential of an economy
Using a combination of two goods or services, when resources are fully and efficiently employed
Show an example of a PPF in action
How can economic growth be shown on a PPF
By an outward shift in the PPF
How can a decline in the economy be depicted by a PPF
An inward shift in the PPF
What two things must be assumed when drawing an original PPF curve
A fixed amount of resources are used
There is a constant state of technology
How can an increase in the quantity or quality of resources affect a PPF
Shifts the PPF curve outwards, so the productive potential of the economy increases and there is economic growth.
This can be achieved with the use of supply side policies
What is the difference between moving along and shifting the PPF
Moving along uses the same number and state of resources and shifts between consumer and capital goods
Shifting uses either more resources or resources of a greater quality and more goods can be produced overall
What are capital goods
They are goods which can be used to produce other goods, such as machinery
What are consumer goods
They are goods which cannot be used to produce other goods, such as clothing
