Production Possibility Diagrams Flashcards
1
Q
What is a production possibility frontier?
A
The maximum potential output an economy can produce.
2
Q
What happens to the economy if the line shifts outward (right)
A
It grows
3
Q
What happens to the economy if the line shifts inward (left)
A
It shrinks
4
Q
Where on the graph is the economy using all the resources it has.
A
On the line
5
Q
What factors can cause a right shift?
A
- Increased natural resources
- Technological advances
- human capital development
-investment in capital
6
Q
What is dynamic efficiency
A
The economy’s ability to expand its production over time. Shifting the PPF outwards through technological advancements, investments and innovations.
7
Q
What does an outward shift in the PPF mean?
A
The economy has archived dynamic efficiency allowing it to produce more goods and services than before with the same resources.
