LS3 - PPF Flashcards
What is a PPF?
A production possibility frontier is the maximum output of the economy when all factors of production are at maximum output
What does the PPF model show?
An arc which shows maximum output of the economy. The points on the arc are different ratios of civilian and military goods being produced. Civilian goods on the y axis and military goods on the x axis.
What is opportunity cost?
What is being restricted on the other hand when you increase the production level of one of the goods.
How is economic growth and negative economic growth shown on the PPF model?
Economic growth will result in an outward shift of the arc, which will mean more goods can become produced on both axis. Negative economic growth will result in inward shift of the arc, which will result in less goods being produced on both axis.
How is economic and negative economic growth caused?
Economic growth is caused by an increase in quality and quantity. Negative economic growth is caused by a decrease in quality and quantity. This also causes factors of production to grow and decrease.
What is economic and negative economic growth?
An increase or decrease in the production of goods and services in an economy.
What is opportunity cost?
The opportune cost of a decision is the value of the next best alternative forgone. (As a result of the choice made)
What is consumer goods?
Goods that do not produce any other goods and are used to satisfy people’s wants and needs.
What is capital goods?
Goods used to produce other goods and services. (A coffee machine is a good but produces coffee)
What does it mean If the economy is on any point on the PPF?
There is an efficient allocation of resources since none are being wasted or under-utilised.
What does it mean if the economy isn’t on any point on the PPF?
Then there is an inefficient use of resources or underutilisation of resources
