Production possibility diagrams Flashcards
also known as PPF production possibility frontier
How do you draw a PPF
What is a PPF?
Shows the maximum potential output combination of two goods that an economy can achieve when all its resources are fully and efficiently employed
How does PPF show economic efficency?
Any point on the PPF shows productive efficient allocation of scarce resources. If the point is inside the PPF it shows an inefficient allocation of resources.
What does a straight line PPF show?
It shows a perfect substitutability of resources
Causes of outwards shifts?
What causes an inward shift of PPF?
This is caused by a fall in the productive potential of a country i.e. something that causes a decrease in the factors of production e.g War , or large scale migration