4.1.1.5 Production possibility diagrams Flashcards
(21 cards)
What is a Production Possibilities Frontier (PPF) ?
the maximum productive potential of an economy, using a combination of two goods or services are fully and efficiently employed
What does “all factors of production are fully utilised” mean ?
All factors of production (labour, land, capital, entrepreneurs) are being used, and each factor of production is being used as efficiently as possible (assuming the current state of technology)
Give the five things that a PPF can show
- The maximum productive potential of an economy
- opportunity cost at a national level
- economic growth or decline
- efficient or inefficient allocation of resources - possible and unobtainable production
When drawing a PPF always remember to write PPF next to the curve
Ok thank you
What could an evaluation of a PFF be ?
Who should decide society’s output mix? Private individuals via the invisible hand of the market or the state?
as the output of good X increases, what happens to that of good Y ?
Decreases
what is a capital good ?
manufactured good used to produce other goods and services
what is a consumer good ?
Intended for final use by an individual
if production is along the curve what does this imply ?
that all factors of production are being used and there is no unemployment of resources
if the production is inside the curve what does this imply ?
that the production is under-using resources
if the production point is outside the line then what does it imply ?
That it is unattainable
what is economic growth ?
the percentage change in the total output (GDP) of a country
how can you show a decline or incline of economic grow on a graph
with movement on the line inward or outward
Which points are Productively Efficient?
Any point on the curve is productively efficient
What is the definition of Productive Efficiency?
Where a firm is utilising all available factors of production in order to maximise production
Which points are Productively Inefficient?
Any points inside the curve is Productively Inefficient
What is the definition of Productive Inefficient?
When resources are being wasted (Unemployed) where output of both goods could have been higher if these factors of productions were being utilised
Which points represent allocative efficiency
It depends
How do you know which points are allocative efficiency?
It depends on whether that output combination is meeting the demand of consumers
efficiency definition
means that your are getting the maximum number of goods from limited resources
how can an economy reach the point of “unattainable” resources
an economy CANNOT reach these points or combination of goods RIGHT NOW with only their own resources…. but they can reach these points if there is TRADE with another economy
