4.1.1.5 Production Possibility Diagrams Flashcards
(12 cards)
What do all of the points on the boundary have in common
They are all productively efficient, however they may not be allocatively efficient.
PPCs illustrate:
Different features of the fundamental economic problem, such as: resource allocation, opportunity cost and trade-offs, unemployment of economic resources, economic growth.
Consumption Goods Definition
Goods that produce a stream of income today.
Investment Goods
Goods that produce a stream of income in the future.
Factors causing a shift in PPC
- An increase in factors of production causes a right shift in line with economic growth.
- A decrease in factors of production causes a left shift in line with economic depression.
Allocative Efficiency Definition
When social welfare is maximised.
Why a PPF is curved
The factors of production are not perfectly mobile between uses.
PPF Definition
A graphical representation of the maximum number of goods or services that an economy can produce using all its resources to their full potential.
Allocative Efficiency Defintion
When social welfare is maximised, occurring at only one point along the PPC line.
Productive Efficiency Definition
When society is using its resources efficiently, occurring at any point along the PPC line.
Positive Statement Definition
Objective statements that can be tested, amended or rejected by referring to available evidence.
Normative Statement Defintion
Subjective statements, carrying value judgements, a statement of opinion rather than a fact that can be tested by looking at available evidence.
