Production Possibility Frontier Flashcards
What does the production possibility frontier (PPF) demonstrate?
What an economy can produce from its given resources
What does the PPF represent graphically?
Scarcity, choice and opportunity
What are the assumptions regarding the PPF?
- The economy produces only two goods
- The resources used in production are fixed
- Each good can be produced using changing ratio of factors of production
In the example of Country G, what are the two goods produced?
Bananas and sugar cane
What is indicated by Combination A in the production possibility table?
100 Kg of bananas and 0 Kg of sugar cane
What is indicated by Combination F in the production possibility table?
0 Kg of bananas and 100 Kg of sugar cane
What does the downward slope of the PPF indicate?
Producing more of one good requires giving up some units of the other good
What shape does the PPF take and what does it indicate?
Concave or bowed outward, indicating increasing opportunity cost
What happens as more bananas are produced according to the PPF?
Increasing amounts of sugar cane must be foregone
What is the trade-off in economics as illustrated by the PPF?
To increase production of one good, production of another must decrease
True or False: The PPF can shift if the resources used in production change.
False
Fill in the blank: The PPF shows the number of choices that are possible from _______ resources.
limited or scarce
What does the slope of the PPF represent?
The trade-off between the two goods
What occurs when resources are allocated away from one good?
More units of the other good can be produced
What is the relationship between the production of two goods on the PPF?
Inverse relationship
