PPF Flashcards
production possibility fontier
what is the PPF
shows the maximum output potential for an economy when all its resources are fully employed
How does a PPF illustrate opportunity cost?
as you move along the PPF, producing more of one good requires sacrificing a certain amount of the other good.
What does a point inside the PPF curve represent?
- 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
What does a point on the PPF curve represent?
Efficient allocation of resources, where the economy is producing at its maximum potential with the given resources and technology
What does a point outside the PPF curve represent
An unobtainable level of production with the current resources and technology
How is economic growth shown on a PPF?
Economic growth is depicted by an outward shift of the PPF, indicating an increase in the productive capacity of the economy
How is economic decline shown on a PPF
Economic decline is depicted by an inward shift of the PPF, indicating a decrease in the productive capacity of the economy.
What causes movements along the PPF curve
Movements along the PPF curve are caused by changes in the allocation of existing resources between the production of different goods
What causes shifts in the PPF
Shifts in the PPF curve can be caused by changes in the quantity or quality of resources, technological advancements, or changes in trade policies
What is the distinction between capital goods and consumer goods
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)
What is the difference between a movement along the PPF and a shift in the PPF?
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
Give an example of a cause for a movement along the PPF
A reallocation of resources from the production of good A to good B, without any change in total resources or technology
Give an example of a cause for a shift in the PPF.
A technological advancement that increases the productivity of resources, causing an outward shift of the PPF
How does an increase in labor force affect the PPF?
An increase in the labor force would shift the PPF outward, indicating a higher productive capacity
How does a natural disaster affect the PPF
A natural disaster would likely shift the PPF inward, indicating a reduced productive capacity
How do investments in capital goods affect the PPF?
Investments in capital goods can shift the PPF outward, reflecting increased productive potential
Can the production of consumer goods affect the long-term growth of an economy? If so, how?
Yes, prioritizing consumer goods over capital goods can limit long-term economic growth by reducing investments in productive capacity
