1.4 Production Possibility Frontiers

Question 1

What is a PPF?

Answer 1

Shows maximum potential output combinations of two goods when all resources are fully used

Question 2

Why is the curve concave?

Answer 2

Law of Diminishing Marginal Returns
- not all factor inputs are equally suited to producing different goods

Question 3

What does a micro PPF look at?

Answer 3

Two specific products

Question 4

What does a macro PPF look at?

Answer 4

Capital v Consumer goods

Question 5

Where is the point of economic efficiency?

Answer 5

Any point on the PPF curve

Question 6

What is Pareto efficiency?

Answer 6

A pareto efficient outcome is an action that harms no one and helps someone
- Lies on PPF curve

Question 7

What does a straight line PPF represent?

Answer 7

Perfect substitutability of factor inputs

Question 8

Cause of an outward shift in PPF?

Answer 8

• Higher productivity
• Better management
• Innovation
• New resources

Question 9

Causes of an inward shift in PPF?

Answer 9

• Exogenous shocks
• Net outward migration
• Fall in productivity

Question 10

What is resource depreciation?

Answer 10

Efficiency of resources diminishes during production