Production Possibility Curves - PPCs / PPFs Flashcards
Q: What do production possibility frontiers (PPFs) show in economics?
A: They show the maximum possible production of two goods or services with a given level of resources and the various combinations of these goods that can be produced.
Q: What does a macro PPF represent?
A: It represents the maximum production of all goods and services in the economy with the given factors of production and their combinations.
Q: How does the shape of a PPF illustrate opportunity cost?
A: A concave PPF shows increasing opportunity cost, meaning more of one good must be given up to produce more of another good as production increases.
Q: What does a concave PPF indicate about opportunity cost?
A: It shows the law of increasing opportunity cost, meaning as more of one good is produced, increasingly more of the other good must be sacrificed.
Q: How does a linear PPF differ from a concave PPF?
A: A linear PPF represents constant opportunity cost, where the same amount of one good is given up for every increase in the other good.
Q: What is productive efficiency in terms of a PPF?
A: Any point on the PPF curve is productively efficient, meaning all factors of production are being used to their maximum potential without waste.
Q: What does a point inside the PPF curve indicate?
A: It indicates productive inefficiency, where resources are not being fully utilized, leading to wasted potential.
Q: What does a point outside the PPF curve represent?
A: It represents an unattainable level of production given the current factors of production.
Q: How can we show an increase in production on a PPF?
A: By shifting the PPF outward through increasing the quantity or quality of factors of production, such as labor, capital, or technology.
Q: What is allocative efficiency on a PPF?
A: Allocative efficiency occurs when the combination of goods produced matches what consumers demand, but this cannot be determined solely from a PPF without knowing demand.
Q: What is Pareto efficiency in relation to a PPF?
A: Any point on the PPF is Pareto efficient, meaning no one can be made better off without making someone else worse off.
Q: How can production increase if a firm is already operating on the PPF?
A: They can reallocate factors of production to specialize in one good, moving along the curve, or they can shift the PPF outward by improving resource quantity or quality.
Q: What does a PPF shift that favors only one good indicate?
A: It indicates an improvement in the quantity or quality of resources that benefits the production of that good but not the other.
