Chapter 4- Production Possibility Curves(PPC)

Question 1

Production Possibility Curve (Position Possibility Frontier)

Answer 1

Production Possibility Curve (Position Possibility Frontier): a curve that shows the maximum output of two types of products, and combination of those products that can be produced with existing resources and technology

Question 2

Production Point

Answer 2

Production Point: Shows what is being produced or what may be produced in the future

Any point inside the curve means that full use of resources is not taking place
Any point on the curve shows that maximum use if being made of resources
Any point outside the curve shows an allocation that is currently unattainable due to the lack of resources

Question 3

Movement Along PPC

Answer 3

Movement Along PPC: Shows that resources are being reallocated and the opportunity cost of that decision

Question 4

Shift in PPC:

Answer 4

Shift in PPC: Shows an increase or decrease in quality and quantity of resources
 Shift to the right for increase
 Shift to the left for decrease

Question 5

Shape of a PPC curve

Answer 5

Most PPC curves are bowed outwards. This is because the best resources to produce a specific product are employed first while the worst are employed last. For example: The opportunity cost of increasing the output of manufacturing goods from 60-80 would be 25 agricultural goods. But a further increase in the output of manufacturing goods by 20 would have an opportunity cost of 75 agricuktural goods. This is because to increase the output of manufacturing goods, you will have to use less suited resources and would hence require more.

In the rare case that all resources are equally suited to producing both products on the diagram, the curve will be shown as a diagonal line. (Pg 23, fig 4.6 in the tb)