4.1.1.5 Production Possibility Diagrams

Question 1

What do all of the points on the boundary have in common

Answer 1

They are all productively efficient, however they may not be allocatively efficient.

Question 2

PPCs illustrate:

Answer 2

Different features of the fundamental economic problem, such as: resource allocation, opportunity cost and trade-offs, unemployment of economic resources, economic growth.

Question 3

Consumption Goods Definition

Answer 3

Goods that produce a stream of income today.

Question 4

Investment Goods

Answer 4

Goods that produce a stream of income in the future.

Question 5

Factors causing a shift in PPC

Answer 5

• An increase in factors of production causes a right shift in line with economic growth.
• A decrease in factors of production causes a left shift in line with economic depression.

Question 6

Allocative Efficiency Definition

Answer 6

When social welfare is maximised.

Question 7

Why a PPF is curved

Answer 7

The factors of production are not perfectly mobile between uses.

Question 8

PPF Definition

Answer 8

A graphical representation of the maximum number of goods or services that an economy can produce using all its resources to their full potential.