Production Possibility Diagrams

Question 1

What do Production possibility diagrams illustrate?

Answer 1

• Different features of the fundamental economic problem, such as: resource allocation, opportunity cost and trade-offs, unemployment of economic resources, economic growth.

Question 2

What can a production possibility curve be used to show?

Answer 2

• 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.

Question 3

What problem does the PPC illustrate?

Answer 3

-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.

Question 4

What are Consumption Goods?

Answer 4

• A final good or consumer good is a final product ready for sale that is used by the consumer to satisfy current wants or needs, unlike an intermediate good, which is used to produce other goods. A microwave oven or a bicycle is a final good.

Question 5

How can a production possibility curve increase?

Answer 5

-If the factors of production increase.

Question 6

What is Allocative efficiency?

Answer 6

-It occurs when social welfare is maximised.

-Takes into account the desires of consumers.