1.5 Production Possibility Curves Flashcards
What is a Production Possibility Curve?
It shows the maximum productive potential of an economy.
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 indicates 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
increase in QQ
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 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
PPC curves and opportunity cost
It can show the opportunity cost of using the scarce resources. For example, if the scarce resource is milk, there is a TRADE-OFF between producing more cheese or more yoghurt
