Production Possibility Frontiers Flashcards
What is the production possibility frontier / production possibility curve ?
A graphical representation that illustrates the maximum output of two goods or services that an economy can produce given its available resources.
Why is the PPF a fundamental concept in economics ?
Used to illustrate scarcity, trade-offs, and opportunity costs.
What are the features of PPF ? (4)
• Scarcity
• Trade-offs
• Opportunity costs
• Efficiency.
How does the PPF demonstrate the concept of scarcity ?
Scarcity refers to the limited availability of resources (such as labour, capital and land) in relation to the unlimited (and often growing) wants and needs of a society.
How does the PPF reflect the idea that an economy must take trade-off ?
Producing more of one good necessitates producing less of another. The shape of the PPF highlights the trade-offs required when reallocating resources between the two goods.
How does the PPF represent opportunity costs ?
The opportunity cost of producing more of one good is the amount of the other good that must be given up. The slope of the PPF represents the opportunity cost of switching from producing one good to producing the other.
How does the PPF represent efficiency ?
Points along the PPF represent an efficient use of resources, where the economy is fully utilising all available resources to produce goods and services. Points inside the PPF are efficient, indicating that resources are not fully employed.
What factors contribute to potential economic growth ?
• Increased quantity of labour through immigration
• Increased quality of labour through education and training
• Increased availability of land through land reclamation
• Increased quality or quantity of capital, in other words the capacity to increase production
• Increased quantity of entrepreneurs.
What is an pareto optimal economy ?
When one person cannot be made better off without another person being made worse off.
