PPFs

Question 1

Capital goods

Answer 1

Goods that make other goods

Question 2

Consumer goods

Answer 2

Goods and services we use to obtain utility

Question 3

Opportunity cost

Answer 3

The next best alternative forgone when making a decision

Question 4

Production possibility frontier

Answer 4

Represents all the combinations of goods and services an economy or firm can produce when all production factors are fully employed and used efficiently.

Question 5

Assumptions about PPFs

Answer 5

All resources in an economy are fully and efficiently utilised
Two types of goods can be produced
There is only one type of good X and one type of good Y

Question 6

Interpreting PPFs

Answer 6

On the curve = all resources are fully and efficiently utilised
Under the curve = resources are under-utilised
Above the curve = not yet obtainable with current resources

Question 7

Causes of outward shift of PPF

Answer 7

Greater quantity of resources available for production
Increasing the quality of current resources e.g. providing workers with training
Technological advancements

Question 8

Causes of inward shift of PPF

Answer 8

Deep recession - firms close down, people are made permanently unemployed or redundant
External shocks which destroy factor resources