4- Production Possibility Frontiers (PPF)

Question 1

What do PPF’s show?

Answer 1

• The maximum that an economy can produce give existing resources (maximum possible production).
• Can show the different choices an economy faces.

Question 2

What does a point moving up or down a PPF show?

Answer 2

An increase in production of one good and a decreased production of another good.

Question 3

What does a point inside a PPF represent?

Answer 3

Underemployed resources.

Question 4

What is Pareto Efficiency?

Answer 4

Represents any point on a PPF curve. It means it is impossible to increase the production of one thing without decreasing the chances of another.

Question 5

What does a PPF shifting to the right represent?

Answer 5

Economic Growth

Question 6

How does an economy grow?

Answer 6

• Increase in quality and/or quality of factors of production.
• Businesses can specialise in particular goods or services and be more productively efficient.
• Reallocation of resources
• More resources like more labour through migration.

Question 7

Why is a PPF a curve?

Answer 7

Represents diminishing resources.

Question 8

What does the PPF curve represent?

Answer 8

Opportunity cost

Question 9

What does a straight, linear PPF represent?

Answer 9

Constant opportunity cost

Question 10

What does it mean if points are underneath the PPF?

Answer 10

Economic resources are not being deployed

Question 11

What is a trade off?

Answer 11

A trade off is a decision that has to be made as resources are scarce where to produce ore goods, more has to be given up.

Question 12

What is Productive Efficiency?

Answer 12

Using up all resources to maximum levels.

Question 13

What points on the PPF are productively efficient?

Answer 13

Every point on the PPF.

Question 14

What is Allocative efficiency?

Answer 14

This occurs when a specific combination of goods is beneficial for society. It refers to a point on a PPF.

Question 15

What is Static Efficiency?

Answer 15

Refers to efficiency in a point in time.

Question 16

What are Capital Goods?

Answer 16

Fixed assets which are used in the production process in order to produce a finished consumer good.

Question 17

What are Consumer Goods?

Answer 17

Goods that are bought in shops as the final product.

Question 18

Examples of Capital Goods?

Answer 18

• Factories
• Offices
• Machines
• Printing Press
• Combine harvester
• Assembly line
• Infrastructure

Question 19

The benefit of capital goods over consumer goods?

Answer 19

Capital good for the long term productive capacity of the economy. More capital goods reduce consumption in the short term, but higher living standards in the short term. The government faces a trade off.