Production Possibility Curve Flashcards
Definition of PPC
a simple representation of the maximum level of output that an economy can achieve, given its current resources and state of technology; may be referred to as a production possibility frontier
What determines an economy’s production possibilities?
The quality and quantity of factors of production
What is constant opportunity cost?
when the opportunity cost stays the same as you increase your production of one good. Constant opportunity costs are due to the factors of production being equally well suited to the production of both goods
What is increasing opportunity cost?
as you continue to increase production of one good, the opportunity cost of producing that next unit increases. opportunity cost changes as the economy moves from one point to another on the production possibility frontier
What does a right shift indicate?
A shift to the right indicates an increase in productive capacity.
What does a left shift indicate?
A shift to the left indicates productive capacity has decreased.
Why do shifts occur? (2)
More resources become available. There is a technological change.
Definition of Trade-Off
what is involved in deciding whether to give up one good for another good
Definition of Productive Capacity
the maximum output that can be produced when all resources are used fully
