PPF

Question 1

What is a production possibility frontier?

Answer 1

It shows combination of two goods that could be produced by an economy if all of its resources are employed fully and efficiently

Question 2

What are the assumptions of a PPF?

Answer 2

-there are only two goods in the economy.
-we can lump all consumer gooods and capital goods as one particular type-huge simplification
-a fixed period

Question 3

How to calculate opportunity cost in the PPF diagram?

Answer 3

Total given up divided by total gained.

Question 4

What economic lessons do PPFs show?

Answer 4

Scarcity,choices,opportunity costs.

Question 5

Why is the PPF normally bowed outwards?

Answer 5

Increasing opportunity costs.

Question 6

Why is there an increasing opportunity cost?

Answer 6

People have different skills,land differs in different parts of the country and raw materials vary from place to place.

Question 7

What are the factors to an outward shift in the PPF?

Answer 7

-discovery of raw materials
-development of new methods of production that increase productivity
-advances in technology
-improvements in education and training that increases the productivity
-factors that lead to an increase increase in the retirement age,better childcare enabling more women to join the workforce.

Question 8

What factors cause an inward shift in the PPF?

Answer 8

-natural disasters
-depletion of aural resources
-factors causing a reduction in. The size of the workforce e.g. emigration,an increase in the number of ears spent in compulsory education
-a deep recession that results in the loss of productive capacity with factories closing down permanently.