Production possibility frontiers Flashcards
What is a PPF
a ppf show combinations of two goods that could be produced by an economy if all of its resources are employed fully and efficiently
if the economy is operating on the line of the ppf curve what does that mean?
if an economy is on the curve it means that all resources are fully and efficiently employed
if an economy is operating inside the ppf curve what does it mean?
if an economy is operating inside the ppf curve it would indicate that there are unemployed resources in the economy. e.g. some workers may be unemployed or machines unused.
if an economy is operating outside the ppf curve what does that mean
-It means that it is unsustainable as they are over using their resources
-impossible in the long term
What is marginal analysis and how does it relate to ppf
-Marginal analysis involves consideration of the impact that small changes have on the current situation
-therefore, a marginal increase in capital goods means that some consumer goods must be sacrificed (opportunity cost)
What is economic growth
an increase in the productive capacity of an economy indicating an increase in real output
which point in the ppf curve would lead to the most economic growth
-the point that would lead to the most economic growth would be when the economy is only producing capital goods.
-this is because capital goods lead to a higher productive capacity in the long run
How can economic growth be shown on the ppf curve
-economic growth can be shown by an outward shift in the ppf curve
-this is because the economy can now produce more goods and services
How can economic decline be shown on the ppf curve
-economic decline is shown by an inward shift of the ppf curve
-this is because the economy can now produce less goods and services
What is the meaning of a movement along a ppf curve
a movement along a ppf curve is a change of the combination of goods being produced
Factors causing an outward shift in the ppf
-discovery of new natural resources
-development of new methods of production that increase productivity
-advances in technology
-improvements in education and training that increase the productivity of the workforce
-factors that lead to an increase in the size of the workforce
Factors causing a reduction in the size
-natural disasters
-depletion of natural resources
-factors causing a reduction in the workforce
-a deep recession that results in a loss of productive capacity with factories closing down permanently
