Production Possibility Frontier (PPF) Flashcards
What is the PPF?
The Production Possibility Frontier is the maximum production potential of the economy.
What does the PPF model assume?
- Technology is fixed
- Economy only produces two things
What does the middle point of the Frontier show?
It represents the maximization of resources at fullest capability. This is due to the law of increasing opportunity cost
Formula for calculating opportunity cost.
what is given up/what is gained = opportunity cost
Factors affecting PPE.
Technology and Education can push the PPE outwards.
An Outwards push signifies?
Efficient allocation of resources to maximize production in an economy.
Maximizing production indicates
Economic growth and more jobs
What is Economic Growth?
Economic growth refers to an increase in the capacity of an economy to produce goods and services.
Why does Economic Growth Occur?
EG can occur as a result of an increase in the quantity of resources or the improvement in quality of resources sometimes due to efficiency.
What is the tradeoff in allocating resources for production in an economy?
If we use our resources to produce consumer goods, there is less production available for capital goods. This may also mean a slow increase in the rate of future growth. This is referred to as the tradeoff.
