Production Possibility Frontiers

Question 1

what is a PPF?

Answer 1

a graph that shows all the different combinations of output of two goods that can be produced using available resources and technology

Question 2

explain 3 causes of an outward shift in the PPF

Answer 2

• advances in technology
• changes in resources
• more education or training

Question 3

explain 2 causes of an inward shift in the PPF

Answer 3

• a decline in both the stock
• decline in the quality of a nation’s natural resources

Question 4

what is the difference between capital and consumer goods?

Answer 4

• Capital goods are man-made products used by a business to produce consumer or other capital goods.
• Consumer goods are products used by consumers

Question 5

what is the difference between actual and potential growth?

Answer 5

• actual growth refers to the yearly increase in real Gross Domestic Product (GDP), reflecting the economy’s performance over a short period.
• potential growth represents the maximum possible output an economy can achieve when all resources are fully employed and operating efficiently

Question 6

explain why we would not want 100% of our production to be on capital goods

Answer 6

if businesses invest too much in capital goods, it can lead to overcapacity

Question 7

explain why we would not want 100% of our production to be on consumer goods

Answer 7

we would forego consumer goods (and their utility) in the future