PPF, consumer/producer surplus + PED Flashcards
what is PPF
production possibility frontier: a curve showing the maximum amount of goods and services that can be produced with a given level of resources
what is the principle of diminishing returns
where resources are better suited to producing a particular good or service, as more resources are used to produce good X the increase in X gets smaller and the amount of Y gets larger
What is PPF for the economy
it is drawn on the basis of all resources in the economy being fully and efficiently used
the resources available to the economy - CELL
capital, enterprise, land and labour
what are capital goods
goods which are used to increase the future capacity of the economy i.e. investment (good which can be used to provide other goods) - standard of living may decrease during a period of large production of capital goods
what are consumer goods
goods which are made for consumption now (goods for current consumption)
what is consumer surplus
the difference between how much consumers are willing to pay for a product and how much they actually pay - shade in the top half of the triangle on the graph
what is producer surplus
the difference between how much a producer sells a good for and how much they would have sold it for - shade in bottom half of the triangle on the graph
define PED
the responsiveness of the quantity demanded following a change in price
what do you call it when following a change in price there will be a more proportionate change in the quantity demanded
elastic good/price sensitive
what do you call it when following a change in price there will be a less proportionate change in the quantity demanded
inelastic good/not price sensitive
PED equation is always a
negative answer
PED equation
the percentage change in the quantity demanded divided by the percentage change in price
if PED is > 1 its
elastic
if PED is +- 1 its
unit elastic
