1.5 Production Possibility Diagrams Flashcards
Definition of PPC/PPF
A curve depicting the various combinations of two products that can be produced when all the available resources are fully and efficiently employed
What does a PPF curve assume?
- a fixed amount of resources
- the efficient use of those resources
What does a PPF curve used to illustrate?
Choice, scarcity, economic growth and opportunity costs
What does a point inside the curve show?
Resources used Inefficiency or resources are underused
What does an outward shift in the curve represent?
Economic growth
Definition of productive efficiency
When it is impossible to produce more of one good without producing less of another. For a firm this occurs when the average total cost of production is minimised
Definition of Pareto efficiency
A state of allocation of resources in which it is impossible to make any one individual better off without making at least one individual worse off
Productive efficiency definition
When maximum output is produced from the available factors of production and when it is not possible to produce more of one good or service without producing less of another
Allocative efficiency definition
When an economy’s factors of production are used to produce the combination of goods and services that maximises society’s welfare
If a point is on the PPC curve is it productively efficient?
Yes because by producing one more of one good would lead to one less of another good being produced
If a point is on the PPC curve does it mean it’s allocatively efficient?
No, only if it is at the point where the combination of goods and services maximises society welfare in an economy
Consumer good definition
Are goods which cannot be used to produce other goods, such as clothing
Capital goods definition
Are goods which can be used to produce other goods, such as machinery
