Production Possibility Frontiers Flashcards
What is a PPF?
It shows all the possible combinations of two goods, or two options available at one time.
What is Pareto efficiency?
When an economy’s scarce resources are being fully employed. The economy is at full potential.
What is a marginal decision?
Decisions to produce, or consume, are made one at a time.
Why are economic decisions marginal?
Because conditions are constantly changing and consumers and producers would be highly irrational if they did not consider it.
Why do PPF’s concave?
Factors are not perfectly substitutable and therefore the opportunity costs differ along the PPF.
What does ‘productivity’ mean?
How effective you can produce output with your resources.
When will a PPF shift?
A PPF will shift if something happens to increase/decrease productivity for both goods
What could cause an outward shift?
Infrastructure, new business startups, better education system, training, improvement in technology
What could cause an inward shift?
Pandemic, war, natural disasters, failure to invest
When does a skewn shift appear?
increase/decrease of only one good
What can cause a PPF to skew?
Investment in capital, lack of resources, better training, flooding, new technological advancements
