PPD (PRODUCT POSSIBILITY DIAGRAMS)

Question 1

What is a Production Possibility Diagram?

Answer 1

A diagram that shows the options available when you consider the production of just two types of goods or services.

Question 2

Define the term “trade off”.

Answer 2

A trade off occurs when you have to choose between conflicting objectives.
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Question 3

What is an opportunity cost?

Answer 3

An opportunity cost is the second best thing you have given up to have the “best thing”.

Question 4

What might cause a outward shift on a PPF?

Answer 4

Improved technology, improvements to labor (Economic growth)

Question 5

What might cause a inward shift on a PPF?

Answer 5

Natural disaster (Negative economic growth)

Question 6

Why are all the points on a PPF productively efficient?

Answer 6

Because all possible resources are being used to produce the maximum possible output.

Question 7

Why are all points on a PPF not allocatively efficient?

Answer 7

Because allocative efficiency refers to people getting what they want or need and not all points on a PPF will represent this.

Question 8

What does a production possibility frontier illustrate?

Answer 8

The various combinations of output an economy is currently capable of producing with its limited resources.