Production Possibility Curves (PPCs/PPFs) Flashcards
(29 cards)
What does a PPF show at a micro level?
The maximum possible output of two specific goods/services using given factors of production.
The various combinations of those two goods that can be produced.
What does a PPF show at a macro level?
The maximum potential output of all goods and services in an economy.
The different combinations of goods/services an economy can produce with current resources.
What is opportunity cost in the context of a PPF?
The amount of one good that must be sacrificed to produce more of the other.
How can you tell a diagram is a microeconomic PPF?
It shows two specific goods, like laptops and tablets.
How can you tell a diagram is a macroeconomic PPF?
It shows general categories, like “goods” and “services”.
Why is a PPF typically drawn as concave?
Because of increasing opportunity cost — as you produce more of one good, you have to give up increasingly more of the other.
What does a point inside the PPF mean?
Inefficient use of resources — not all factors are fully employed.
What does a point outside the PPF mean?
It’s unattainable with current resources and technology.
What are the three main types of efficiency on a PPF?
Productive efficiency
Allocative efficiency
Pareto efficiency
What is productive efficiency on a PPF?
When production is happening on the PPF curve, meaning all resources are fully and efficiently used.
What does a point inside the PPF curve represent?
Productive inefficiency — not all factors of production are being used (e.g. unemployment or unused capital).
What does a point on the PPF curve represent in terms of productive efficiency?
It shows the maximum possible output — the economy is using all its resources efficiently.
What does a point outside the PPF curve represent?
It is currently unattainable with the existing level of resources and technology.
What is allocative efficiency?
When the combination of goods produced matches consumer preferences — i.e. resources are allocated to produce what people actually want.
Can you identify allocative efficiency from a PPF diagram alone?
No — because we don’t have information about consumer demand from the diagram.
What is Pareto efficiency?
A situation where no one can be made better off without making someone else worse off — it’s a form of optimal resource allocation.
Why can we not determine allocative efficiency just from a PPF diagram?
Because we don’t know consumer demand — we can’t tell if the combination being produced actually satisfies what society wants.
If society prefers tablets over laptops, which point is more allocatively efficient: Point B (more laptops) or Point X (more tablets)?
Point X is more allocatively efficient if society wants more tablets. Allocative efficiency depends on consumer preference.
What is Pareto efficiency on a PPF?
Any point on the PPF curve is Pareto efficient — you can’t make anyone better off without making someone else worse off.
Moving from Point B to C on a PPF increases tablets but reduces laptops. Is this Pareto efficient?
Yes — tablets users are better off, but laptop users are worse off. That’s a classic example of a Pareto trade-off.
What does an outward shift of the PPF represent?
Economic growth — an increase in the economy’s capacity to produce due to improved resources or technology.
What can cause a PPF to shift outward?
Increase in quantity or quality of factors of production
Technological advances
Improved education/training (human capital)
More efficient resource use
If a business is at a point inside the PPF (e.g. Point Z), what does that mean?
It is productively inefficient — not all resources are being used (e.g. unemployment or unused capital).
What does a point inside the PPF (e.g. Point Z) represent?
It shows productive inefficiency — not all resources (labour/capital) are being used; there’s unemployment or underuse.
