production possibility frontier (PPF) Flashcards
what is the PPF
the production possibility frontier
what is the definition of PPF
a curve showing the maximum combination of goods or services that can be produced in a given period with available resources
what is a trade-off
a situation in which the choice of one alternate requires the sacrifice of another
what are capital goods
goods used as part of the production process such as machinery or factory buildings
what are consumer goods
goods produced for present use
why are capital goods considered an investment
they are goods to increase the future capacity
what are the three key economic questions
What - what goods and services should be made with scarce resources
How - how should productive resources be used through the economy to produce goods and services
For whom - how should the goods and services be allocated between the population
what is potential economic growth
an expansion in the productive capacity of the economy
what is gross domestic product (GDP)
a measure of the economic activity carried out in an economy over a period.
is the PPF a model
yes - a simplified version of reality
what are labour resources
the quantity and quality of human effort directed toward producing goods and services
what is the line on a PPF graph called that separates the possible and impossible
frontier
what are capital resources
goods that have been produced and are used to produce other goods and services
what is a frontier
a frontier represents maximum production with the available resources
what does producing on the frontier mean
the economy is using all of its resources efficiently (full employment)
why in an economy can not everyone’s needs be met
because resources are scarce
why does opportunity cost happen
when scarcity forces people to choose
what is opportunity cost
the value of the next best alternative : when a decision is made its what’s given up
what does a point inside the frontier represent
underemployment
what does a point moving towards the frontier represent
economic expansion
what two changes cause the frontier to shift
a change in productive resources
technological change
what is technological change
an advance in overall knowledge in a specific area
what are the gains of technological change
increased productivity
increase in economic output per(/) input
what is productivity
measured by the ratio of output per worker per unit of time
what are two factors that increase worker productivity
investment in physical capital (tools)
investment in human capital
what is human capital
the knowledge and skills that people obtain through education, experience and training
what does increasing productivity mean
increased production with the same amount of resources so the frontier shifts outwards
what does an outward shift of the frontier represent
economic growth
what is economic growth
a sustained rise over time in a nations production of goods and services
what type of line is the PPF
a curved line which is concave around the origin
what is the law of increasing opportunity cost
as you increase the production of one good the opportunity cost to produce the additional good will increase
what does a curved line show
that opportunity cost varies along the frontier.
