Economic growth & the PPF Flashcards
What will growth in the economy do to the PPF?
Shift it outwards
What is growth in the economy caused by?
1) An increase in quantity of resources available e.g. more labour or capital equipment (production factors).
2) An increase in quality of resources available e.g. new technology.
CAPITAL GOODS (examples)
Used to produce other goods e.g. factories, roads, machines, equipment
CONSUMPTION GOODS (examples)
All those things that we consume and use up, food, clothes
What can the PPF be used to show in the case of capital and consumption goods?
The different combinations of output of capital & and consumption goods.
What are consumption goods also known as?
CONSUMER GOODS
Describe the relationship between output of capital goods & output of consumer goods, and the effect this will have on the PPF
Greater investment in capital goods (capital production), means greater production consumption goods, shift PPF outwards.
Describe the opposing relationship between the output of capital goods and the output of consumer goods, and the effect this will have on the PPF
Less production of/investment in capital goods, less production of consumption goods in the future, PPF will shift inwards.
THE LAW OF DIMINISHING RETURNS
As production increases, the less is the output per unit of resources, i.e.opportunity cost increases as output expands
What is a recession?
A failure to grow
As economies grow, what improves?
Living standards
What is asymmetric growth in the economy?
Economy where developments in tech. improve output for one product but not another.
What do linear PPF’s have?
Constant opportunity costs
Are most economic outputs linear? Why?
No most aren’t, as you get gains from producing more
