PPF’s Flashcards
PPF
Production Possibility Frontier:
shows a combination of two or more goods or services an economy can produce using all available resources efficiently
Point inside a PPF
inefficient use of resources
Point on a PPF
efficient use of resources
point outside a PPF
unattainable
movement along a PPF
shows opportunity cost
opportunity cost on a linear PPF
stays constant
causes of outwards shifts in the PPF
-higher productivity/efficiency of factor inputs
-increase in the stock of capital and labour supply
-innovation and invention of new products + resources
-discovery/extraction of new natural resources
causes of a PPF shifting inwards
-damaging effects of natural disasters
-destruction/loss of factor inputs caused by civil war or conflict
-large scale net outward labour migration (brain drain)
-a trend decline in the productivity of inputs
asymmetric growth
an economy can grow because of an increase in productivity in one sector of the economy