4) Production and Possibility Curves -MB Flashcards
Production and Possibility Curves:
what is trade-off?
a situation in which the choice of one alternative requires the sacrifice of another
Production and Possibility Curves:
what is the opportunity cost?
in decision making, the value of the next-best alternative forgone (gone without)
Production and Possibility Curves:
what is a production possibility curve (PPC)?
a curve showing the maximum combinations of goods or services that can be produced in a set period of time given available resources
Production and Possibility Curves:
what are capital goods?
goods used as part of the production process, such as machinery or factory buildings
Production and Possibility Curves:
what are consumer goods?
goods produced for present use (consumption)
Production and Possibility Curves:
when do consumers experience opportunity cost?
when choosing, on what, to spend income
Production and Possibility Curves:
when do producers experience opportunity cost?
when deciding on production and forgoing profits from an alternative venture
Production and Possibility Curves:
when does the government experience opportunity cost?
when looking at the lost value to society from policies they choose not to implement
Production and Possibility Curves:
The PPC shows the… that scarcity imposes on… production combinations of two goods
limit… possible
Production and Possibility Curves:
why is the PPC curved?
we assume that the best factors of production for one good are the worst for another
Production and Possibility Curves:
if production for a good is low, there is…
low opportunity cost to increase production
Production and Possibility Curves:
if production for a good is high, there is…
high opportunity cost to increase production
Production and Possibility Curves:
a movement from one point on a PPC diagram to another shows a…
choice being made
Production and Possibility Curves:
if the movement is from one point on the PPC curve to another point on the PPC curve, then this shows…
an opportunity cost
Production and Possibility Curves:
the opportunity cost of the increase in production of one good is the…
decrease in production of the other good (pareto efficiency)
Production and Possibility Curves:
what does a shift of the PPC show?
a change in the amount of resources
Production and Possibility Curves:
what can PPC shifts outwards be caused by (5 things):
- Improved Technology
- Improved quality or quantity of labour
- Improved quality or quantity of land
- Improved quality or quantity of capital
- Improved quality or quantity of enterprise
Production and Possibility Curves:
if the PPC shifts outwards, the total possible output…
increases
Production and Possibility Curves:
if the PPC shifts inwards, total possible output…
decreases
Production and Possibility Curves:
what can PPC shifting inwards be caused by (5 things):
- Natural Disaster
- Worsened quality or quantity of land
- Worsened quality or quantity of labour
- Worsened quality or quantity of capital
- Worsened quality or quantity of enterprise
an outward shift of the PPC shows long run…
economic growth as the productive capacity of the economy has increased
