Production Possibility Diagrams Flashcards
1
Q
What do Production possibility diagrams illustrate?
A
- Different features of the fundamental economic problem, such as: resource allocation, opportunity cost and trade-offs, unemployment of economic resources, economic growth.
2
Q
What can a production possibility curve be used to show?
A
- It can be used to show different combinations of output for two products. For example: good x and good y given the resources available.
-As the output of good x increases that of good y decreases and vice versa.
3
Q
What problem does the PPC illustrate?
A
-It illustrates the problem of choosing how to use scarce resources when producing goods and services.
-There is also an opportunity cost in deciding what combinations of good x and good y to produce.
4
Q
What are Consumption Goods?
A
-Those that produce a stream of income of income today?
5
Q
How can a production possibility curve increase?
A
-If the factors of production increase.
6
Q
What is Allocative efficiency?
A
-It occurs when social welfare is maximised.
-Takes into account the desires of consumers.
