4- Production Possibility Frontiers (PPF) Flashcards
What do PPF’s show?
- The maximum that an economy can produce give existing resources (maximum possible production).
- Can show the different choices an economy faces.
What does a point moving up or down a PPF show?
An increase in production of one good and a decreased production of another good.
What does a point inside a PPF represent?
Underemployed resources.
What is Pareto Efficiency?
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.
What does a PPF shifting to the right represent?
Economic Growth
How does an economy grow?
- 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.
Why is a PPF a curve?
Represents diminishing resources.
What does the PPF curve represent?
Opportunity cost
What does a straight, linear PPF represent?
Constant opportunity cost
What does it mean if points are underneath the PPF?
Economic resources are not being deployed
What is a trade off?
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.
What is Productive Efficiency?
Using up all resources to maximum levels.
What points on the PPF are productively efficient?
Every point on the PPF.
What is Allocative efficiency?
This occurs when a specific combination of goods is beneficial for society. It refers to a point on a PPF.
What is Static Efficiency?
Refers to efficiency in a point in time.
What are Capital Goods?
Fixed assets which are used in the production process in order to produce a finished consumer good.
What are Consumer Goods?
Goods that are bought in shops as the final product.
Examples of Capital Goods?
- Factories
- Offices
- Machines
- Printing Press
- Combine harvester
- Assembly line
- Infrastructure
The benefit of capital goods over consumer goods?
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.
