2.4 Production Possibility Frontiers Flashcards
What is a Production Possibility Frontier ?
The maximum possible output combinations of two goods or services that an economy can achieve when all resources are fully and efficiently employed.
What is an example Of PPF seen commonly ?
- Consumer Goods (y-axis)
- Capital Goods
What are consumer goods ?
Products or services that consumers purchase to meet their needs and wants.
What are Capital Goods in Economics ?
Physical assets that businesses use to produce goods and services
Is there opportunity cost with in the PPF ?
No as there are unemployed resources which were previously not in use and can produce both types of goods.
Is there an opportunity cost on the PPF ?
Yes
When will the opportunity cost be the same along the line ?
When the line is straight
Where is the opportunity cost higher on a concave PPF ?
The nearer to the extremes the higher the opportunity cost
What does an outward shift in PPF represent ?
Increase in the productive potential of the
economy
When does Economic Growth occur ?
Increase in the quantity or quality in the economy’s FoP
What does an inwards shift in PPF represent ?
Reduction in the quantity or quality of FoP
Is any point on the PPF productively efficient ?
Yes
Is any point on the PPF allocatively efficient ?
No , only one which meets society’s needs.
What is Productive Efficiency ?
An economy operating at its full potential.
What is Pareto Efficiency ?
Where you cannot make more of one good , without producing less of another.
