3.1.5 - Production Possibility Diagrams Flashcards
What is the key feature of a PPD?
PPF (Production Possibility Frontier) or production possibility curve.
What are the three types of PPD’s?
Linear, Concave, Convex
What does a straight line PPF represent?
An indication of perfect factor sustainability of resources.
What does a linear PPF mean in regards to marginial opportunity cost?
Switching resources from x to y is constant.
What is an example of a linear PPF?
Resources are not specialised and can be substituted for each other with no added cost.
What can a PPF diagram be used to represent on a macro scale?
Economic growth
Full employment and unemployment.
What are the two forms of economic growth?
Short run
Long run
How is economic growth defined?
An increase in the potential level of real output the economy can produce over a period of time.
How is short run economic growth shown on a PPF diagram?
Movement from Point C to B.
How is long run economic growth shown on a PPF diagram?
The movement of the frontier from PPF1 to PPF 2.
How does short run economic growth occur?
Makes use of spare capacity within the economy.
How does long run economic growth occur?
An increase in total productive capacity.
How can you demonstrate employment levels on a PPF?
The frontier demonstrates complete full employment of labour.
Point D demonstrates a certain level of unemployment.
(Note that if long run economic growth moves the frontier to the point E, points A, B, C will now be inside the frontier and as a result would now be points of unemployment)
How can you tell if a PPF is showing microeconomics or macroeconomics?
The labels on the axis of the graphs.
What is resource allocation?
The process through which the available factors of production are assigned to produce different goods and services.
What is productive efficiency?
A firm minimising the cost of a good.
When it is impossible for an economy to produce more of one good than the other.
When does productive efficiency occur?
When an output is maximised from available inputs.
How can you show productive inefficiency on a PPF?
Points within a frontier.
How can you show productive efficiency on a PPF?
Points on the frontier.
What is productive inefficiency often associated with?
Unemployment.
What is another prequisite for productive efficiency?
As you are on the frontier, more capital goods can only be produced by giving up the production of other goods.
