Production Possibility Curves (PPC) Flashcards
Allocative efficiency
Allocative efficiency occurs when the value that consumers place on a good or service (reflected in the price they are willing and able to pay) equals the cost of the resources used up in production.
Capital goods
Producer or capital goods such as plant (factories) and machinery and equipment are useful not in themselves but for the goods and services they can help produce in the future. Distinguished from “financial capital”, meaning funds which are available to finance the production or acquisition of real capital.
Concave PPF
A concave PPF is “bowed outwards”. This means there is a rising marginal opportunity cost as you produce more of one good. This is because there is imperfect factor mobility. E.g. labour/land/capital is more suited towards the production of one good than another.
Consumer goods
Goods bought and used by consumers and households. They are the end result of manufacturing.
Economic efficiency
Economic efficiency is about making best or optimum use of our scarce resources among competing ends so that economic and social welfare is maximised over time.
Economic growth
An increase in the productive potential of a country – shown by an outward shift of the production possibility frontier.
Pareto efficiency
In neoclassical economics, an action done in an economy that harms no one and helps at least one person. A situation is Pareto efficient if the only way to make one person better off is to make another person worse off.
PPC
A boundary that shows the combinations of two or more goods and services that can be produced using all available factor resources efficiently.
Productive potential
The amount of output an economy could produce if all of its resources were fully and efficiently employed.
Trade-off
A trade-off implies that choices have to be made between different objectives of policy for example a trade-off between economic growth and inflation.
