Th1.1: Production Possibility Frontiers Flashcards
What does a PPF show?
the maximum possible combinations of capital and consumer goods that the economy can produce with its current resources and technology
What does any point on a PPF curve show?
the maximum productive potential of the economy
How might economic growth have occurred in relation to PPFs?
increasing the quantity or quality of the resources
How might economic shrinkage have occurred in relation to PPFs?
natural disasters, natural resources running out, decreasing in quality/quantity of labour, migration or fall in spending on education
When is economic efficiency achieved?
when resources are used for their best use
Refer to PP
What does point B show?
not producing at its maximum output
Refer to PP
What does point C show?
unobtainable production
How would a production level be unobtainable?
don’t have enough resources or technology to produce at that level
Refer to PP
What does Graph 2 show?
a fall in efficiency or change in resources that only affects capital good manufacture
Refer to PP
What does Graph 3 show? What could this be due to?
an increase in the ability to produce consumer goods but no change in capital goods. this could be due to an improvement in technology that makes production of consumer goods more efficient
What does a movement along a PPF curve indicate?
a change in the combination of goods produced - same resources allocated differently.
e.g more capital goods produced than consumer or vice versa
What does a shift of the PPF curve indicate?
a change in the productive potential of the economy - more or less capital and consumer goods produced
What are consumer goods?
goods that are demanded and bought by households and their individuals
What are capital goods?
goods that are produced in order to aid the production of consumer goods in the future
What does an outward shift of the PPF curve represent?
potential growth and an outward shift of the LRAS curve
