PPF AND APF Flashcards
WHAT IS THE APF
The Aggregate Production Function (APF) shows the relationship between two variables – real GDP and the labour force. We hold all other factors constant (eg capital, or tech)
What is Labour Force
The people in an economy that are able to work
WHY IS THE APF NOT A STRAIGHT LINE
Law of diminsihing returns
What is PPF
The production possibility frontier (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.
Define the Law of increasing opportunity cost
The opportunity cost of increasing the production of one good in an economy with scarce resources normally increases.
What can economic growth occur as a result of
an increase in the quantity of resources or an improvement in their quality.
What could a point lying inside the PPF, not on it, be considered?
attainable, but it is inefficient.
unemployed resources.
It would be possible to increase the production of both goods, so that point is inferior compared to points on the frontier.
What does APF mean
Aggregate Production Function
What is the law of diminishing returns
The law of diminishing returns states that adding an additional factor of production results in smaller increases in output
What creates an upward shift in APF
workers undergo training and development to improve skills
people become more educated
How does a movement along the APF occur
It occurs through an increase in labor through population growth, higher participation rate, increase in hours worked will increase in the productivity of labour
An shift of the function is due to
An increase in the productivity of labour for example through capital deepening, a greater stock of capital equipment per worker
