1.3 Opportunity Cost And PPF Flashcards
What is opportunity cost?
The value of the next best alternative forgone as a result of the choice you made
How can economic agents use opportunity cost?
- Consumers use it to decide what to spend their incomes on
- Producers use it to decide what and how to produce goods and services
- Government use it to decide what policies to choose
What is a PPF curve?
It shows the maximum possible combinations of 2 goods or services an economy can produce with its current resources and technology.
Simply, how much of 2 goods you can make with given resources and technology
What does a movement along the PPF curve mean?
Indicates a change in the combination of goods produced
What does a shift of the PPF curve mean?
It indicated a change in the productive potential of the economy.
For example:
- Outward shift for economic growth
- Inward shift for negative economic growth
What can an outward shift if the PPF show?
- An increase in CELL
- Innovation and invention of new products and resources
- Discovery if new natural resources
What can cause an inward shift of the PPF?
- High unemployment
- Natural disasters
- Conflict
- Long term fall in productivity of labour
What is economic growth/negative economic growth?
An increase/decrease in the production of goods and services in an economy
What are consumer goods?
They are goods which don’t produce other goods. They are used to satisfy peoples wants and needs
What are capital goods?
They are goods which are used to produce other goods or services.
What if an economy is on a point on its PPF
There is an efficient allocation of resources, since none are being wasted or under-utilised
What if an economy is not on their PPF
An inefficient use of resources
Under-utilised resources
