PPF curve and factors of production Flashcards
What does the ppf represent
The maximum potential output that can currently be produced in a period of time
What is the total output in an economy known as
GDP
What is on the y axis of a ppf curve
Consumer goods
What is on the x axis of a ppf curve
Capital goods
What does it mean if an economy is operating at a point inside the ppf curve
Inefficient use of factors of production e.g unemployment
What does it mean if an economy is operating at a point on the ppf curve
Productively efficient
What is a point outside the ppf curve
Highly desirable but currently unachievable
How can an economy achieve a point outside the ppf curve
higher quality or quantity of factors of production
Causes a shift outwards of ppf (economic growth)
What are the 4 factors of production
Land, labour, enterprise and capital
What is land
Natural resources used in production
some are renewable e.g. forests and water
some are non renewable e.g. coal and copper
What is labour
Human resources used in production
How is the quality and quantity of labour determined
quantity depends on the size of working population
quality depends on education and training
What is enterprise
Innovation to produce goods and services e.g. clothing business
What is capital
Man made resources used in production e.g. machinery
How is the quantity and quality of capital determined
Quantity depends on the level of capital investment in an economy
Quality depends on level of technology and amount of wear
What is capital investment
The usage of current factors of production in firms, to generate new and improved capital equipment (improved quality causes shift out of ppf)
Why is capital investment an opportunity cost
Using factors of production for capital investment reduces output of consumer goods ‘today’ but increases ‘tomorrow’
How does capital investment impact the ppf curve
In the short term, will operate on a different point on the ppf (less consumer goods and more capital goods but still productively efficient)
In the long term, will cause a possible shift out in the ppf because improved quality in factors of production
What is the difference between gross investment and net investment
Gross investment is the total investment on new capital inputs
Net investment is gross investment adjusted for depreciation
What causes a shift in of ppf
- Natural disasters
- War
- Migration
- Negative net investment caused by gross investment being less than depreciation