PPF

Question 1

A PPF

Answer 1

Shows the combinations that can be achieved when all resources are fully and efficiently employed

Question 2

Inside the PPF

Answer 2

Unemployed resources or when resources are used inefficiently

Question 3

Outside the PPF

Answer 3

Requires increase in factors of production or productivity or technology

Question 4

Trade and exchange between countries ..

Answer 4

Allows nations to consume beyond their own PPF

Question 5

Producing more of both goods would represent..

Answer 5

An improvement in allocative efficiency

Question 6

Law of diminishing returns

Answer 6

Adding another factor of production causes a relatively smaller increase in output (occurs during a PPF change)

Question 7

If the opportunity cost of providing two products is constant then…

Answer 7

We can draw the PPF as a straight line. The gradient of that line is a way of measuring the opportunity cost between two goods.

Question 8

The PPF will shift outwards when

Answer 8

1. Improvements in productivity and efficiency and new technology
2. More fop are used
3. Discovery of new natural resources
4. Innovation and technological advances

Question 9

Causes of an inward shift of the PPF curve

Answer 9

1. Natural disasters
2. War/conflict
3. Net migration out of a country
4. Fall in productivity of labour

Question 10

When does resource depreciation occur

Answer 10

When factor inputs are used in supplying goods and services and, over time, they deteriorate and become harder and more costly to maintain. These can drop in productivity.

Question 11

Examples of resource depreciation

Answer 11

Machinery, buildings and basic infrastructure

Question 12

What is resource depletion

Answer 12

When the stock of available resources actually declines. E.g. The amount of forestry can be permanently damaged by excessive tree logging

Question 13

The PPF can be used to illustrate ..

Answer 13

Economic growth which is defined as a sustained increase in a country’s productive capacity

Question 14

Economic growth flows from..

Answer 14

1. Increase in the stock of capital inputs
2. An expansion of the available labour supply perhaps driven by population growth or migration
3. An increase in the productivity of factors of production leading to higher output per worker employed
4. A rise in productive potential bought about by innovation and by the growth of entrepreneurial activity which leads to more businesses being created and surviving

Question 15

In the short term a rise in capital investment might lead to ..

Answer 15

A reduction in short term living standards as more resources are allocated to capital accumulation rather than consumption of goods and services