Production Possibility Frontiers (PPFs)

Question 1

What are Production Possibility Frontiers?

Answer 1

PPFs depict the maximum productive potential of an economy, using a combination of two goods or services, when resources are fully and efficiently employed.

Question 2

What does the law of diminishing returns state?

Answer 2

The law of diminishing returns states that if increasing quantities of a variable input are combined with a fixed input, eventually the marginal product and then the average product of that variable input will decline.

Question 3

What are capital goods?

Answer 3

Goods which can be used to produce other goods, such as machinery.

Question 4

What are consumer goods?

Answer 4

Goods which cannot be used to produce other goods, such as clothing.