Production Possibility Frontiers Flashcards
What is a PPF?
A PPF shows the maximum potential output for two goods or services that an economy could produce when all of its resources are fully used or employed.
Why is an economy unable to produce outside its existing frontier?
An economy is unable to produce at any point outside its existing frontier, because the PPF shows the maximum potential output of an economy.
What does an outward shift of the PPF show?
An out ward shift of the PPF shows an increase in the productive potential of an economy.
What two factors can lead to economic growth?
1) Increase in the quantity of resources available for production, e.g. number of workers, factories or offices.
2) Increase in the quality of resources, e.g. education makes workers more productive, technical progress will allow machines and and production processes to produce more with the same amount of resources.
Give three possible causes of an inward shift of the PPF.
1) Natural disaster - 2004 Tsunami in Thailand destroyed agriculture and tourism in some coastal areas, cutting its productive capacity.
2) War can lead to destruction of economic infrastructure, e.g. Nazis scorch and burn tactic, and dramatic fall in the workforce.
3 Global Warming - Flooding and destruction of farmland will devastate global agriculture, and in turn effect all production.
How does unemployment affect the PPF and why?
What would happen if resources became fully employed?
If there is high unemployment production occurs within the boundary and not on the boundary because factories and machinery are left idle.
If resources became fully employed, the economy could move from within the boundary to a point on the boundary.
What does the boundary on the PPF show?
The boundary on the PPF shows the level of output where all resources are fully and efficiently employed.
What is productive efficiency?
Productive efficiency is where the maximum output is being produced and the costs are at a minimum.
What is allocative efficiency?
Allocative efficiency occurs when social welfare is maximised.
What is technical efficiency?
Technical efficiency occurs when output is maximised using as little physical input as possible.
Explain opportunity cost with regard to the PPF.
Why is this?
What does this say about resources?
The opportunity cost of increasing production of one type of good or service is the number of units of the other type of good or service which have to be sacrificed.
This because there aren’t enough resources to increase production of one good or service and maintain the same level of output of the other good or service.
Resources are scarce, so choices have to be made about their use.
What is the impact of increasing the production of capital goods?
Increasing production of capital goods will lead to economic growth and increased output in the future. However reduction in production of consumer goods means that current living standards fall to enable future living standards to rise more quickly.
What is economic growth?
An increase in the productive capacity of an economy.
What is marginal cost?
Marginal cost is the addition to total cost brought about by producing one additional unit of the product.
