PPF Flashcards

production possibility fontier

1
Q

what is the PPF

A

shows the maximum output potential for an economy when all its resources are fully employed

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2
Q

How does a PPF illustrate opportunity cost?

A

as you move along the PPF, producing more of one good requires sacrificing a certain amount of the other good.

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3
Q

What does a point inside the PPF curve represent?

A
  • Inefficient allocation of resources, where the economy is not utilizing all of its resources fully or efficiently
    • labour not being used up, unemployment
  • idle capital
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4
Q

What does a point on the PPF curve represent?

A

Efficient allocation of resources, where the economy is producing at its maximum potential with the given resources and technology

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5
Q

What does a point outside the PPF curve represent

A

An unobtainable level of production with the current resources and technology

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6
Q

How is economic growth shown on a PPF?

A

Economic growth is depicted by an outward shift of the PPF, indicating an increase in the productive capacity of the economy

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7
Q

How is economic decline shown on a PPF

A

Economic decline is depicted by an inward shift of the PPF, indicating a decrease in the productive capacity of the economy.

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8
Q

What causes movements along the PPF curve

A

Movements along the PPF curve are caused by changes in the allocation of existing resources between the production of different goods

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9
Q

What causes shifts in the PPF

A

Shifts in the PPF curve can be caused by changes in the quantity or quality of resources, technological advancements, or changes in trade policies

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10
Q

What is the distinction between capital goods and consumer goods

A

Capital goods are used in the production of other goods and services (e.g., machinery, buildings), whereas consumer goods are final products consumed by individuals (e.g., food, clothing)

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11
Q

What is the difference between a movement along the PPF and a shift in the PPF?

A

A movement along the PPF represents a change in the allocation of resources between two goods, while a shift in the PPF represents a change in the economy’s capacity to produce goods due to changes in resources, technology, or other factors

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12
Q

Give an example of a cause for a movement along the PPF

A

A reallocation of resources from the production of good A to good B, without any change in total resources or technology

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13
Q

Give an example of a cause for a shift in the PPF.

A

A technological advancement that increases the productivity of resources, causing an outward shift of the PPF

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14
Q

How does an increase in labor force affect the PPF?

A

An increase in the labor force would shift the PPF outward, indicating a higher productive capacity

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15
Q

How does a natural disaster affect the PPF

A

A natural disaster would likely shift the PPF inward, indicating a reduced productive capacity

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16
Q

How do investments in capital goods affect the PPF?

A

Investments in capital goods can shift the PPF outward, reflecting increased productive potential

17
Q

Can the production of consumer goods affect the long-term growth of an economy? If so, how?

A

Yes, prioritizing consumer goods over capital goods can limit long-term economic growth by reducing investments in productive capacity