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Economics Year 1 > PPF's (pro study 19/09) > Flashcards

PPF's (pro study 19/09) Flashcards

1
Q

What is the basic economic problem

A

How we satisfy unlimited needs and wants with finite resources

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2
Q

What does PPF stand for

A

Production possibilities frontier

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3
Q

PPF definition

A

Represents what can be produced when all resources are fully employed

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4
Q

What does PPD stand for

A

Production possibility diagram

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5
Q

PPD definition

A

A diagram that shows the different production combinations that can be produced given a fixed resource stock

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6
Q

Feasible definition

A

A set of goods that can be produced with the available resources

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7
Q

Where are feasible production points on a PPF?

A

Any point on or below the PPF

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8
Q

Infeasible definition

A

A set of goods that cannot be produced with the available resources

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9
Q

Where are infeasible production points on a PPF

A

anything outside the PPF

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10
Q

Productive efficiency definition

A

Producing a combination of goods where you cannot increase the output of one good without decreasing the output of another good.

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11
Q

How can a PPF demonstrate opportunity cost

A

Opportunity cost is equal to the number of good Y units lost

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12
Q

Opportunity cost definition

A

The benefit associated with the next best alternative to the action actually taken

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13
Q

How is productive capacity represented by the position of the PPF

A

Large economy - PPF situated further out

Small economy - PPF situated further in

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14
Q

What factors cause a shift in an economy’s PPF

A
  • Changes in resources available
  • Changes in productivity
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15
Q

Examples of what causes an Outward shift on an economy’s PPF

A
  • Discovery of new natural resources
  • new inventions/innovations
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16
Q

examples of what causes an inward shift on an economy’s PPF

A
  • emigration
  • capital flight (restirction of limiting to how much capital is in the economy)
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17
Q

What is more realisitic a straight or concaved PPF

A

concave PPF

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18
Q

Why is a straight PPF less realistic

A
  • Perfect Mobility of factors
  • Constant returns of scale
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19
Q

What is perfect mobility of factors

A

Opportunity cost is the same at all points along the PPF

20
Q

What is constant returns of scale

A

When a firm increases all the factors of production by a factor and output increases by an equal factor. As a result the average cost for the firm stays constant.

21
Q

Why is a concave PPF more realistic

A
  • Immobility of factors
  • Diminishing returns of scale
22
Q

What is immobility of factors

A

Opportunity cost changes as you move along the PPF

23
Q

What is diminishing returns to scale

A

When a firm increases all the factors of production by a factor and output increases by a smaller factor. As a result this causes the firm’s average cost to rise.

24
Q

Productivity definition

A

the amount of output produced per unit of input

25
Q

What happens to an economy’s PPF if productivity increases

A

productivity increases
–> amount produced per unit increases
——> PPF expands

26
Q

What happens to an economy’s PPF if productivity decreases

A

Productivity decreases
–> amount prodcued per unit decreases
——> PPF contracts

27
Q

productive capacity definition

A

The maximum amount of output that can be produced by a given firm or economy

28
Q

General productivity changes

A

Parallel PPF shift

e.g discovered natural resources

29
Q

Specific productivity changes

A

Rotational PPF shift

e.g productivity to produce good X increases

  • PPf will only expand for good X
30
Q

What do we mean by consumer goods

A

Consumption
- day to day goods and services

31
Q

What do we mean by capital goods

A

Investment
- machinery

32
Q

How does investment affect the productive capacity of an economy

A

investment increases the productive capacity but results in less consumption now

33
Q

Allocative efficiency definition

A

Occurs when there is an optimal allocation of resources according to consumers preferences

34
Q

Why are the points outside of the PPF not allocativly efficient

A

Infeasible production points
- cannot be the best allocation of resources

35
Q

Why are points inside the PPF not allocative efficient

A

Feasible production points
Assume more is better then less
Not allocatively efficient

36
Q

Why are points on the PPF allocatively efficient

A

Feasible production points
- productively efficient because all resources are fully utilised

  • Many different combinations of good Y good X
37
Q

How do we know what the optimal allocation of resources in the economy is

A

When consumer utility is maximised

  • firms in the economy should focus on producing goods that consumers want
38
Q

utility definition

A

The satisfaction derived from consuming goods and services

39
Q

What is the allocative efficient point on the PPF when there is a strong preference for consumer goods

A

Further down the PPF
- closer to the X axis

40
Q

is the allocative efficient point of the PPF when there is a strong preference for capital goods

A

Higher up the PPF
- closer to the Y axis

41
Q

Resources definition

A

anything that can be used to satisfy a need or a want

42
Q

land

A

all the natural resources of the earth

43
Q

labour

A

all human effort that goes into production

44
Q

capital

A

any goods which are used to make other goods

45
Q

enterprise

A

the skills to bring together all the other resources for production and the factors of production

Economics Year 1 (3 decks)

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