3 - Production Possibility Frontier Flashcards
What is opportunity cost?
The value of the next best alternative forgone as a result of the choice made
How do consumers use opportunity cost?
They use it to decide what they spend their income on
How do producers use opportunity cost?
To decide what and how to produce goods and services
How does the government use opportunity cost?
To decide what policies to choose
What does PPF stand for?
Production possibility frontier
What does a PPF graph show?
The maximum potential output of a combination of two goods or services an economy can achieve when its resources are fully and efficiently used.
What is economics growth?
Increase in the production of goods or services
What is negative economic growth?
Decrease in the production of goods and services
How do you show economic growth on the PPF?
An outward shift of the curve
How do you show negative economic growth on the PPF?
An inward shift on the curve
What does it mean if the point is under the PPF curve?
The resources are not being used effectively
What are consumer goods?
Goods that satisfy people’s needs but don’t produce other goods
What are capital goods?
Goods that produce other goods and services
What does it mean if an economy is on the PPF curve?
It means there is an efficient allocation of resources as none are being wasted or under-utilised
Why might an economy not be on the PPF curve?
An inefficient use of resources
Under-utilised reources
