Production Possibility Frontier Flashcards
What is a production possibility frontier?
Shows the maximum output that can be produced in an economy at any given moment, given the resources available. It is a diagram that shows opportunity costs of producing products
What does production efficient mean?
The maximum we can produce
What does the shape of the PPF depend on?
It depends on the assumptions and the returns to a factor, eg how good a resource is in producing something
What happens if there are constant returns to a factor?
The PPF would be a straight line
If a point on the PPF was unattainable, how could it become attainable in the future?
Through economic growth and international trade
What does an outward shift on the PPF represent?
Economic growth as it shows an increase in the maximum combinations of products the economy can produce
What can cause an outward shift on the PPF?
An improvement in the quality/quantity of resources available, eg skilled labour, more machinery, quantity of labour
Why is international trade an important factor for the PPF?
If a country specialised in some products, they can sell abroad for profits. It means consumption outside the PPF is possible
Where to produce on the PPF?
Depends on the country’s economic growth (free market forces or government intervention) and the pressure for short run consumption vs long run investments
