Econ test chapter 1.4 (Production possibility curve) Flashcards
(12 cards)
What does a production possibility curve do
It represents the maximum combination of goods and services which can be produced in an economy (the production capacity of the economy)
What do the points along the curve represent on a PPC diagram
The points on the curve show that resources are being used efficiently and to the optimum potential.
What do the points outside of the curve represent
This point shows that production is not attainable with only the available resources & technology.
What do points within the PPC represent?
The underutilisation of resources
What is the relationship between the two factors on the y and x axis
inversely proportional
What does it mean when a point is on the axis?
It means that all resources are dedicated to the product on that axis.
Why is the shape of the PPC a curve?
There is an increasing opportunity cost- producing more of one good means giving up increasing amounts of the other good.
In what cases is the PPC a straight line?
when opportunity cost is constant- switching resources between the production of the two goods does not result in an opportunity cost
What does movement along a curve result in.
an opportunity cost- to produce more of one good there must be less of another product.
What does an outward shift mean
the country has increased its productive capacity (GDP)
What are two causes of a shift in a PPC
- an increase in resources, such as labor or raw materials. This increases productive potential of the economy. (e.g)
- improvements in technology. businesses can produce goods more efficiently. More can be produced with the same resources. (e.g)
What causes an inward shift in PPC
-natural disasters, wars and in general destruction of the country’s farmland, factories and infrastructure.
