Production Possibility Curve

Question 1

Define Production Possibility Curve

Answer 1

A graphic representation showing all the possible options of output for two products that can be produced using all the factors of production

Question 2

What are the two types of factors that play a role in the production capacity of the economy

Answer 2

Internal and External

Question 3

What are internal factors

Answer 3

Factors over which you have control such as the amount of land, labour and capital
E.g. A business owner taking on more employees

Question 4

What are external factors

Answer 4

Factors over which you have no control

E.g. Weather Conditions

Question 5

What are 3 examples of choices that need to be made

Answer 5

Households choosing between buying new clothes or food or a combination of the two
Firms choosing between hiring new workers and increasing production or financing an increase in machinery and equipment
Government making a choice as to what to do with tax money

Question 6

Where are the efficient points on a PPC

Answer 6

Any points that lie on the PPC

Question 7

Where are the inefficient points on a PPC

Answer 7

Any points within the PPC

Question 8

What is opportunity cost

Answer 8

The value of the next best alternative given up

Question 9

Where is Scarcity on the PPC

Answer 9

Any point outside the PPC - Any future point

Question 10

What are the 3 ways the market mechanism maximises the efficiency of the market

Answer 10

Allocation of resources to goods and services through the price mechanism
Rationing of goods and services to those that the demand the most
Distribution of resources to those who have and are willing to use or sell resources

Question 11

What are the 5 effects of inefficiency

Answer 11

Imperfect markets and monopolies
Unequal opportunities and poverty
Instability, unemployment, inflation
Unsustainable use of resources
Individual Selfishness

Question 12

What are the 4 things a PPC shows

Answer 12

Choice
Efficiency
Opportunity
Scarcity