Production possibility curves chapter 5 Flashcards
Production possibility curve (4)
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.
the quality and quantity of factors of production determines an economy’s production possibilities - the goods and services it can produce with the resources it has available.
can be used to show the choices available and how resources are allocated.
how the production possibility curve works (3)
The end points of the production possibility curve represent the extreme possibilities of what can be produced.
In between these extremes, there are many points on the production possibility curve where other combinations of the two products can be made while maximizing total output.
The points are important since they indicate an efficient allocation of resources. In other words, the economy is getting all it can from the resources available given the present state of technology.
the production possibility curve and opportunity cost (1)
as an economy moves along its production possibilities curve in the direction of producing more of a particular good, the opportunity cost of additional units of that good will increase.
straight line PPC (1)
opportunity costs are the same no matter how far you move along the curve.
Convex PPC (2)
opportunity cost is increasing as one moves along the curve.
increasing opportunity cost is the concept that as you continue to increase production of one good, the opportunity cost of producing that next unit increases.
concave PPC (2)
opportunity costs are decreasing.
decreasing opportunity cost states that a firm’s opportunity cost reduces when production declines
trade off (2)
what is involved in deciding whether to give up one good for another good.
if one product is produced more, then the production of the other product is reduced.
a change in available resources (1)
An outward shift in the PPF indicates an expansion in the economy caused by a change in technology or an increase in resources.
shifts in production possibility curve (2)
A shift to the right indicates an increase in productive capacity
A shift to the left indicates productive capacity has decreased.
reasons for shift in the ppc (4)
More resources become available.
The productive capacity of an economy increases when more resources become available or when there is an improvement in the quality of resources used.
Such a change can come about through an increase in the factors of production.
Advances in technology continue over time and affect the position of the production possibility curve of an economy, Where the overall change is positive, then more of both products can be produced. This is the normal situation in most economies. There are certain circumstances though where technological progress may fall, resulting in a decrease in the production of both products.
productive capacity (2)
the maximum output that can be produced when all resources are used fully.
using production possibility curve to show choices (2)
Production possibility curves can be used to show the difficult choices that have to be made by many low-income economies.
Scarce resources need to be allocated to meeting present needs at the expense of investing in a range of capital goods that will increase economic potential in the longer term.
