PPF Flashcards
What does the Production Possibility Frontier (PPF) model show?
he PPF model shows the combinations of output that an economy can produce using its available resources and level of technology for a given time period.
What concept does the PPF model help to explain in terms of resource allocation?
he PPF model helps to explain the concept of opportunity cost, which is the cost of foregone alternatives when resources are used to produce one good over another.
What does the PPF illustrate regarding trade-offs?
he PPF illustrates that producing more of one good means sacrificing the production of another, highlighting trade-offs.
What are the two types of goods represented on the axes of the PPF?
The two types of goods are:
Consumer goods (e.g., cars, clothing)
Capital goods (e.g., machinery, technology)
How does the PPF model relate to economic efficiency?
Points on the PPF curve represent efficient use of resources, while points inside the curve indicate underutilization, and points outside the curve are unattainable with current resources and technology.
What happens to the PPF if there is an improvement in technology or an increase in resources?
If there is an improvement in technology or an increase in resources, the PPF shifts outward, indicating that the economy can produce more of both goods.
What does a point inside the PPF curve indicate?
A point inside the PPF curve indicates that resources are not being used efficiently, and the economy is producing less than its potential output.
What does a point on the PPF curve indicate?
A point on the PPF curve indicates that resources are being used efficiently and the economy is producing at its maximum potential given its resources and technology.
How is economic growth defined?
Economic growth is defined as an increase in the productive capacity of the economy, measured by the increase in Gross Domestic Product (GDP) over time.
How is economic growth measured?
Economic growth is measured by calculating the change in the value of production over time.
What is the formula for calculating economic growth?
EconomicGrowth=(
OriginalGDP
ChangeinGDPfromoneyeartoanother
)×100
What is Real GDP (rGDP)?
Real GDP is the Gross Domestic Product of a nation after adjusting for inflation.
How does inflation affect Nominal GDP?
Inflation increases the Nominal GDP by raising the general price level of goods and services, which may not reflect a true increase in the quantity of goods and services produced.
What does an increase in Real GDP indicate?
An increase in Real GDP indicates that the economy’s productive capacity has grown and that there is a real increase in the value of goods and services produced.
What is Nominal GDP?
Nominal GDP is the raw GDP value without adjusting for inflation.
