UNIT 1 AOS 1 - PPF, Living Standards and Circular Flow Flashcards
What are the two things that limit the productive capacity/size of PPF?
The volume or quantity of resources and the efficiency of how the resources are employed.
What is happening if an economy operates at a point inside the PPF?
The economy is not operating at technical efficiency and maximum productive capacity, leading to underutilisation of resources.
How can an economy operate at a point outside of the PPF?
A point outside of the PPF shows a production level currently unattainable due to lack of resources, requiring economic growth through increased resources or efficiency.
In what situation would the economy operate at a point outside the PPF?
The PPF shifts to the right due to increased quantity of resources or increased efficiency in production. Examples include:
* Increase in capital such as machinery
* Technological advances
* Increase in population through migration and higher birth rates
* More natural land for resources.
In what situation would the PPF shift to the left?
The PPF shifts to the left due to long-term lack of resources, such as:
* War or natural disasters causing loss of capital
* Decrease in population resources
* Aging or unhealthy population.
What key concepts are shown through the PPF?
The PPF shows:
* Relative scarcity
* Choice
* Opportunity cost
* Trade-off.
What are the 4 assumptions of the PPD?
The four assumptions of the PPD include:
* Ceteris Paribus
* Fixed resources
* Fixed technology
* Technical efficiency.
What are the effects of higher levels of economic activity on living standards?
Higher levels of economic activity lead to:
* Increased average per capita incomes
* Boost in consumption
* Lower unemployment rates
* Improved mental and physical health.
* Negative environmental outcomes.
What are the effects of lower levels of economic activity on living standards?
Lower levels of economic activity result in:
* Decreased material living standards
* Increased unemployment
* Reduced average incomes
* Higher social isolation and crime rates.
* Possible reduction in pollution.
How does the circular flow show what to produce?
Businesses decide what to produce based on consumer demand and government policies.
How does the circular flow show how to produce?
Businesses choose production methods based on labour and capital availability.
How does the circular flow show whom to produce for?
Goods and services go to those who can pay or to those that the government provides for (e.g., welfare, public hospitals).
What are the four flows shown in the circular flow.
The first flow is the nation’s flow of resources. The second flow is the nation’s flow of income. The third flow is the nation’s flow of spending, with consumers spending on businesses to fulfil needs and wants, whilst also spending on income tax, providing the government with income to spend on businesses for the public. The final flow is the nation’s total value of finished goods, which is often measured in GDP.
