Production possibility curves Flashcards
(20 cards)
What is a Production Possibility Curve (PPC)?
A graph that shows the maximum possible output combinations of two goods or services an economy can produce when all resources are fully and efficiently used.
What does a point on the PPC represent?
Full and efficient use of resources.
What does a point inside the PPC represent?
Inefficient use of resources or unemployment.
What does a point outside the PPC represent?
Currently unattainable with existing resources and technology.
What does a movement along the PPC show?
A reallocation of resources between two goods — opportunity cost is involved.
What is opportunity cost?
The value of the next best alternative forgone when a choice is made.
What can cause the PPC to shift outward?
Economic growth, improved technology, or increased resources.
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Flashcard 8
Q: What can cause the PPC to shift inward?
Loss of resources (e.g. war, natural disaster) or a decline in technology.
What does a bowed-out (concave) PPC curve show?
Increasing opportunity cost — resources are not perfectly adaptable.
Why do economists use PPCs?
To show scarcity, opportunity cost, efficiency, and economic growth.
What is opportunity cost?
The next best alternative foregone when a choice is made.
Give an example of opportunity cost.
Choosing to spend money on a new phone instead of a concert means the concert is the opportunity cost.
How is opportunity cost shown on a PPC?
By the amount of one good sacrificed to produce more of another.
What is meant by efficient use of resources?
Using all resources in a way that maximises output without waste.
How is efficiency shown on a PPC?
Any point on the curve itself
What is productive efficiency?
Producing the maximum output for a given set of inputs.
What is the basic economic problem?
Scarcity — limited resources but unlimited wants.
What assumption is made about consumers in economics?
Consumers aim to maximise satisfaction (utility).
What assumption is made about businesses?
Firms aim to maximise profit.
Are economic decisions always rational?
No — behavioural economics shows people don’t always act logically.
