L3 - Production Possibility Frontier Flashcards
What is opportunity cost?
The value of the next best alternative forgone as a result of the choice made
How do consumers use opportunity cost?
Helps them decide on what to use their money on
How do producers use opportunity cost?
To decide what goods and services to produce and how to produce them
How does the government use opportunity cost?
To decide what policies to choose/introduce
How do producers choose what to make and how?
Use market research to see what to produce
Find out how much money to sell it for - affordable yet profitable
What is the production possibility frontier?
A curve on a graph showing the maximum potential output of two goods/services an economy can achieve when all its resources are fully and efficiently deployed given the current level of technology
What is economic growth?
An increase in the production of goods/services in an economy
What can cause economic growth?
Better quality/quantity of the factors of production - or combination of both
How does one show economic growth on a graph?
An outward shift on a production possibility curve
What is negative economic growth?
Decrease in production of goods/services in an economy
What can negative economic growth be caused by?
War
Natural disasters
Recession
How does one show negative economic growth on a graph?
Inward shift of a production possibility curve
What are consumer goods?
Goods which don’t produce other goods - consumers use them to satisfy wants and needs
What are capital goods?
Goods use to produce others goods and services
If an economy is on the PPF, what does it suggest?
There is an efficient allocation of resources
No resources are under-utilised
