Production Possibility Frontier (PPF)

Question 1

What assumptions do we make when drawing a PPF curve

Answer 1

• That there is a fixed number of resources in the economy
• that there is a constant state of technology
• there is just a need for a reallocation of resources

Question 2

what would happen if fewer consumer goods are produced

Answer 2

this would reduce living standards in the short run as resources are moved away from private consumption

Question 3

What would happen with the increased production of capital goods?

Answer 3

It would enable a higher output of consumer goods to be produced in the long run. Meaning future living standards will rise as more consumer goods can be produced.

Question 4

what factors would cause the PPF to shift outwards

Answer 4

• Advances in technology
• Increases in investment
• More education + training for workers

Question 5

What happens if there is an increase in the quantity or quality of resources

Answer 5

it leads to the increase in the maximum productive potential of an economy (economic growth)

Question 6

What would cause an inwards shift in the PPF graph

Answer 6

• war
• natural disasters
• pandemics