PPF Flashcards
What is PPF?
Illustrates the maximum potential output of an economy when all resources are fully employed
What are capital goods?
They are goods which are required to produce other goods
What are consumer goods?
Those that give utility to consumers
What do points on the PPF indicate?
They indicate that the maximum productive potential of an economy and resources are being used efficiently
What do points inside the PPF indicate?
They imply that resources are not being allocated efficiently.
When is there unobtainable production?
Any point outside the PPF is currently unobtainable unless there is economic growth
What is marginal analysis?
It is concerned with the impact of additions or subtractions from the current situation
What is economic growth?
Refers to an increase in the productive capacity of the economy indicating an increase in real output
What is economic decline?
Refers to a decrease in the productive capacity of the economy indicating a decrease in real output
What are movements along a PPF caused by?
A change in the combination of goods produced
What are right shifts in the PPF caused by?
new natural resources
new methods of production that increase productivity
advances in technology
improvements in education and training
factors that lead to an increase in the size of workforce
What are left shifts in the PPF caused by?
natural disasters
depletion of natural resources
factors reducing the size of the workforce
deep recession that results in the loss of productive capacity
