Production Possibility Frontier (Week 1)

Question 1

What does the PPF curve show

Answer 1

What the economy can produce, assuming that all the labour, capital and land at the country’s disposal are employed to the full, and assuming a given state of technical progress.

Question 2

Given that resources and capacity are limited…

Answer 2

… a choice has to be made about the type of good to produce

Question 3

What is economic growth

Answer 3

The increase in the potential level of real output the economy can produce over a period of time

Question 4

What are the two forms of economic growth

Answer 4

Long-run economic growth and short-run economic growth

Question 5

What is full employment

Answer 5

When all who are able and willing to work are employed

Question 6

What is unemployment

Answer 6

When not all of those who are able and willing to work are employed

Question 7

What is resource allocation

Answer 7

The process through which the available factors of production are assigned to produce different goods and services eg how many of the society’s economic resources are devoted to suppling different products such as food, cars, healthcare and defence

Question 8

What is productive efficiency

Answer 8

Productive efficiency for the economy as a whole occurs when it is impossible to produce more of one good without producing less of another. For a firm it occurs when the average total cost of production is minimised

Question 9

What is allocative efficiency

Answer 9

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

Question 10

What is production possibility frontier

Answer 10

A curve depicting the various combinations of two products that can be produced when all the available resources are fully and efficiently employed