PPF Flashcards
What is a PPF?
It shows the maximum possible output combinations of two goods or services an economy can achieve when all the resources are fully and efficiently employed.
Why is the PPF curved?
Due to the law of diminishing returns, the marginal output of consumers goods diminishes as more factor resources are allocated to it.
What is the point inside the PPF curve?
Inefficient, some resources unemployed
What are the points on the PPF curve?
Efficient, all resources fully employed
What is the point outside the PPF curve?
Unattainable with current resources and state of technology
What causes an outward shift in the PPF?
An increase in the quantity of FOPs eg: discovery of new natural resources
An increase in the quality of the factors of production eg: Increase labour productivity due to better management
An advance in technology
What causes an inward shift in the PPF?
Decrease in the quantity of FOPs eg: natural disasters or war
A decrease in the quality of FOPs eg: loss of workers skills in a prolonged recession
What is a non parallell shift in the PPF?
A technolocial advance in production only
What does a straight line PPF indicate?
Indicates that resources are equally efficient at producing both goods shown on the PPF axes - opportunity cost is constant
