Oppertunity Cost & PPF/C Flashcards
What does PPC/F stand for?
Production possibility curve/frontier
What is productive efficiency?
Is attained when a firm operates at minimum average total costs choosing an appropriate combination of inputs. (Cost efficiency) and producing the maximum output possible from it’s imputs. (Technical efficiency).
What is the analysis of a point below the line?
Some resources are unemployed.
Inefficient methods of production are being used.
What is the analysis of a point above the line?
Production is not currently possible given current resources and technology.
What is Pareto efficiency?
An allocation of resources is said to be a Pareto optimum if no reallocation of resources can make an individual better off without making some other individual worse off.
What is a PPC/F in terms of economy?
Maximum outline on economy is able to produce two goods in the current time period. Furthermore, if all resources are efficiently employed, for example capital and consumer goods.
What is an outward shift of the PPC?
Suggests that an economy’s capacity to produce goods and service has increased because: the quantity and / or quality of it’s resources has increased.
How does an outward shift of the PPC effect the economy?
- Increase in the size of the labour force 2. Increase in the quality of the labour force, e.g. Improved education. 3. Increase in stock of capital goods. 4. Increase in quantity or quality of land resources. 5. Improvements in the state of technology, which raise productivity.
Difference between outward shift in economy and firms?
Economy - the productive capacity of the economy has grown. Individual Firm - the firm can produce more of both goods than it could previously.
How can a firms PPC outward shift occur?
Investing in new capital, increasing size of it’s workforce, etc.
How could a country increase it’s land resources?
Plant more trees Invade Extraction
Give an example of a technological progress that has increased productivity?
Hydraulics or computers.
What is productivity?
The effectiveness of productive effort, especially in industry, or measured in terms of the rate of output.
What is an inward shift of PPC?
Suggests that an economy’s capacity to produce goods and services has decreased. I.e. It’s productive potential has declined in quantity or quality.
Why might there be an inward shift of PPC?
- Decrease in the size of the labour force. 2. Decrease in the quality of infrastructure. 3. Decrease in the quality of labour. 4. Natural disasters 5. Negative net investment
What is ‘opportunity cost’?
The coat of a decision in terms of the benefits of the next best alternative foregone.
What do Point I and Point Z represent?
What is a PPF/C?
A PPF/C shows the maximum potential output of two goods that can be produced in the current time period if all resources are efficiently employed.
Points of a curve mean
that all resources are being employed efficiently.
Analyse the points of the economic efficiency graph
Point A:
Productively efficient
Economically efficient
Pareto efficiency
Point C:
Productively inefficient
Economically inefficient
Pareto inefficient
How does this relate to the economic problem? Opp. Cost graph.
Choice: Choose between 2 goods
Scarcity: Limited factors of production
Opportunity cost: Reallocation of good B
Opportunity cost evaluation
Useful: how scarcity & choice present opportunity cost
BUT…
doesn’t assist choice
- Next best alternative not always easily identifiable
- Not useful where there is no choice.
