Production Possibility Frontiers Flashcards
What do PPF’s/PPC’s/PPB’s show?
The maximum possible production of 2 goods/services with given FOP
The various combinations of 2 goods/services that can be produced with given level of FOP
What are capital goods?
Good used in the production of other goods
What are consumer goods?
Goods bought directly by consumers
What is a trade-off?
Choosing between two conflicting objectives, as they cannot be achieved at the same time, i.e., compromising
What do all the different points on the PPF represent?
A different choice about how to use the available scarce resources
Why are all points on the PPF productively efficient but not allocatively efficient?
Because all resources are used as efficiently as possible to maximise possible output,
but not all points will reflect the production of goods that people want or need
What is opportunity cost?
The next best alternative foregone/give up when making a decision
How do the economic agents use opportunity cost?
Producers: profit foregone by not making an alternative product
Consumers: benefit benefit foregone by not buying alternative goods
Government: lost value to society from policies they chose not to implement
What problems are there with using the concept of opportunity cost?
Not all alternatives are know
Some product don’t have alternative uses
Lack of info/misinformation on alternatives + their cost
Some factors, e.g. land, are hard to switch to an alternative use
Generally, what causes a PPF to shift?
When the total level of resources in an economy changes
What factors cause an inward shift on PPF?
Negative economic growth caused by natural disaster (inward shift)
What factors cause an outward shift on PPF?
Improvement in technology—more output is produced using the same number of resources
Improvement in the quality of labour
Economic growth
