Chapter 3 - Production Possibility Forntiers

Question 1

What is the Production Possibility Frontier (PPF)?

Answer 1

The PPF, also called the Production Possibility Curve (PPC), is a diagram that shows the maximum combinations of two goods or services an economy can produce using all its resources efficiently.

Question 2

What does a point on the PPF curve represent?

Answer 2

A point on the curve represents productive efficiency—resources are fully and efficiently used.

Question 3

What does a point inside the PPF curve indicate?

Answer 3

A point inside the curve indicates inefficiency or underutilization of resources, such as unemployment.

Question 4

What does a point outside the PPF curve signify?

Answer 4

A point outside the curve is unattainable with current resources and technology.

Question 5

What is the trade-off illustrated by the PPF?

Answer 5

The PPF is often used to illustrate the trade-off between capital goods and consumer goods.

Question 6

What are capital goods?

Answer 6

Capital goods are used to produce other goods in the future (e.g., machines).

Question 7

What are consumer goods?

Answer 7

Consumer goods are for immediate consumption (e.g., food).

Question 8

What happens if more resources are allocated to capital goods?

Answer 8

It may lead to greater economic growth in the future, as it boosts productive capacity.

Question 9

How is economic growth shown on the PPF?

Answer 9

Economic growth is shown by an outward shift of the PPC, meaning the economy can now produce more of both goods.

Question 10

What can cause an outward shift of the PPC?

Answer 10

Factors such as an increase in resources (like labor or land), improvements in technology, better education and training, or discovery of new raw materials.

Question 11

What can cause an inward shift of the PPC?

Answer 11

A PPC can shift inward if there’s a loss of resources due to war, natural disasters, or economic decline.