PPF Flashcards
What is economic efficiency
Making the most out of scarce resources among competing wants so that economic and social welfare is maximised over time
Define opportunity cost
The value of the next best alternative forgone
What does making decisions involve
Forgoing alternatives
Where can opportunity cost be applied to
Decision making and is not strictly limited to spending
Define forgo
To give up or do without
Who uses opportunity cost and why
Consumers to decide what to spend their income on
Producers to decide what goods and services to produce and how
Governments use it to decide what policies to choose
What does PPF in PPF curve stand for
Production Possibility Frontier
What does the PPF curve also show
The opportunity cost of two different goods and services
Define productive potential
The maximum potential output of a combination of two goods or services an economy can achieve when all its resources are fully and efficiently employed, given the current level of technology
How do wars and natural disasters effect the economy
They effect the PPF
Define economic growth
Increase in the production of goods and services
Causes for economic growth
1) Increase in quantity of the factors of production
2) Improvement in the quality of the factors of production
3) Combination of the two
How do you represent economic growth on the PPF
An outward shift
How do you represent negative economic growth on the PPF
An inward shift
What are capital goods?
Goods that produce goods and services
For example an assembly line
