Chapter 4 - Production Possibility Curve

Question 1

Define the production possibility curve.

Answer 1

The production possibility curve represents the maximum combination of goods and services which can be produced in an economy, i.e the productive capacity of the economy.

Question 2

What are the 2 conditions for a country to be on its own PPC?

Answer 2

1. All resources are used - there is no unemployment of factors of production.
2. There is efficiency in the use of resources - factors of production are allocated to their best use/purpose.

Question 3

What are the ways that a country can shift its PPC outwards?

Answer 3

1. Increase in quality of factors of production, such as more highly skilled labour
   * Achieved through investments in education, research and training. Increased productivity can also be caused by technological advances and improved production techniques.
2. An increase in the quantity of factors and production, such as the discovery of new resources, the reclamation of land, or net migration of labour into a country.