Production Possibility Diagrams

Question 1

Resource allocation

Answer 1

The process through which the available factors if production are assigned to produce different goods and services e.g. How many of the society’s economic resources are devoted do supplying different products such as food, cats, healthcare and defense.

Question 2

Choice

Answer 2

Choosing between alternatives when making a decision on how to use scarce resources

Question 3

Productive efficiency

Answer 3

When it is impossible to produce more of one good without producing less of another.

Question 4

Allocative efficiency

Answer 4

When the available economic resources are used to produce the combination of goods and services that best matches people’s tastes and preferences.

Question 5

What does a production possibility diagram show?

Answer 5

Illustrates the different combinations of two resources that can be made with a fixed quantity of resources.

Question 6

Name five things that cause a shift in PPF

Answer 6

1. Investment in new technology
2. Introduction to new resources
3. Increased supply of labour
4. Improvement in human capital through training/ education
5. Better management of resources through division of labour and specialisation

Question 7

How does a firm operate at minimum average total cost?

Answer 7

By producing the maximum output from inputs into the production process.