T1 Production Possibilities Frontier

Question 1

What is the production possibility frontier

Answer 1

A model that illustrates the problem of scarcity by demonstrating the maximum combination of two outputs that can be produced by a person household or country

It represents all possible outcomes we can produce if we use all the resources efficiently

Question 2

What does it represent if a point sits outside the production possibilities frontier

Answer 2

It is unattainable as it requires more resources than we possess

Question 3

What does it represent if a point sits inside of production possibilities frontier

Answer 3

It is attainable but represents inefficient use of our resources

Question 4

What is opportunity cost

Answer 4

Opportunity cost is the value of the next best alternative that we had to forego

Question 5

How do you calculate opportunity cost

Answer 5

Opportunity cost is measured by measuring the slope of the production possibility frontier

Point A (1,4)
Point B (2,2)

Slope = (2-4)/(2-1)= -2

It is then expressed as the opportunity cost of producing 1 unit of A is 2 units of B