Essential Graphs Flashcards
The Production Possibility Frontier (PPF)
A PPF shows the different combinations of goods and services that can be produced with a given amount of resources in their most efficient way
Any point inside the curve – suggests resources are not being utilised efficiently Any point outside the curve – not attainable with the current level of resources
An outward shift of the PPF implies that an economy has achieved economic growth
Point X is an allocative inefficient combination – it lies within the PPF Points, C, A and B are all allocatively efficient
D is unattainable unless there is an outward shift if the PPF
The Effects of an Indirect Tax on Producers and Consumers
An indirect tax increases the costs faced by producers. The amount of the tax is shown by the vertical distance between the two supply curves. Because of the tax, less can be supplied at each price level. The result is an increase in the equilibrium market price and a contraction in market demand to a new equilibrium output of Q2
P2 is the price paid by consumers after the introduction of the tax P2-P3 is the tax per unit received by the government
(P2-P3) x Q2 is the total tax revenue received by the government The producer keeps price P3 after the tax has been paid
The consumer pays P2-P1 of the tax
The producer pays P1-P3 of the tax
The effect of the tax depends on the price elasticity of demand & supply for the good
