4.1.1.5 Production possibility diagrams

Question 1

What is a Production Possibilities Frontier (PPF) ?

Answer 1

the maximum productive potential of an economy, using a combination of two goods or services are fully and efficiently employed

Question 2

What does “all factors of production are fully utilised” mean ?

Answer 2

All factors of production (labour, land, capital, entrepreneurs) are being used, and each factor of production is being used as efficiently as possible (assuming the current state of technology)

Question 3

Give the five things that a PPF can show

Answer 3

• The maximum productive potential of an economy
• opportunity cost at a national level
• economic growth or decline
• efficient or inefficient allocation of resources - possible and unobtainable production

Question 4

When drawing a PPF always remember to write PPF next to the curve

Answer 4

Ok thank you

Question 5

What could an evaluation of a PFF be ?

Answer 5

Who should decide society’s output mix? Private individuals via the invisible hand of the market or the state?

Question 6

as the output of good X increases, what happens to that of good Y ?

Answer 6

Decreases

Question 7

what is a capital good ?

Answer 7

manufactured good used to produce other goods and services

Question 8

what is a consumer good ?

Answer 8

Intended for final use by an individual

Question 9

if production is along the curve what does this imply ?

Answer 9

that all factors of production are being used and there is no unemployment of resources

Question 10

if the production is inside the curve what does this imply ?

Answer 10

that the production is under-using resources

Question 11

if the production point is outside the line then what does it imply ?

Answer 11

That it is unattainable

Question 12

what is economic growth ?

Answer 12

the percentage change in the total output (GDP) of a country

Question 13

how can you show a decline or incline of economic grow on a graph

Answer 13

with movement on the line inward or outward

Question 14

Which points are Productively Efficient?

Answer 14

Any point on the curve is productively efficient

Question 15

What is the definition of Productive Efficiency?

Answer 15

Where a firm is utilising all available factors of production in order to maximise production

Question 16

Which points are Productively Inefficient?

Answer 16

Any points inside the curve is Productively Inefficient

Question 17

What is the definition of Productive Inefficient?

Answer 17

When resources are being wasted (Unemployed) where output of both goods could have been higher if these factors of productions were being utilised

Question 18

Which points represent allocative efficiency

Answer 18

It depends

Question 19

How do you know which points are allocative efficiency?

Answer 19

It depends on whether that output combination is meeting the demand of consumers

Question 20

efficiency definition

Answer 20

means that your are getting the maximum number of goods from limited resources

Question 21

how can an economy reach the point of “unattainable” resources

Answer 21

an economy CANNOT reach these points or combination of goods RIGHT NOW with only their own resources…. but they can reach these points if there is TRADE with another economy