Section 1.4 Production Possibility Curve Flashcards
What is a production possibility curve?
A curve that shows the maximum output of two types of products and combination of those products that can be produced with existing resources and technology
What does a point inside the production possibility curve represent?
Any point inside the curve means that all the resources aren’t being fully utilized
What does a point on the production possibility curve represent?
A point on the curve is an efficient output, meaning the maximum use is being made of the resources
What does a point outside the production possibility curve represent?
There are not enough resources to produce outside the limit set by the PPC. This point could also represent the future output of the goods (due to an increase in resources)
What does the movement of a point along the production possibility curve represent?
This shows the reallocation of resources. For example, a country currently produces 75 units of agricultural goods and 80 units of manufactured goods. A movement along the curve shows that the country now produces 60 units of manufactured goods meaning they can now produce 100 units of manufactured goods. There has not been an increase or decrease of resources, the resources have only been reallocated.
What would the curve look like if the resources are equally suited to produce both types of products?
A straight line
What does a shift outwards (right) of the production possibility curve represent?
An increase in the quantity or quality of the resources.
Output increases
What does a shift inwards (left) of the production possibility curve represent?
A decrease in the quantity and quality of the resources.
Output decreases
What causes a shift outward (right) in the production possibility curve?
- Advance in technology
- Improved education
- Increase in GPD/ investments
