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Flashcards in Productivity Possibility Curves Deck (7)
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1

Define a production possibility curve (PPC).

Portrays the combination of 2 products an economy can produce in a given time period with current resources and tech.
A PPC shows the ability of a country to produce goods & services i.e. its productive capacity, some countries fail to fully allocate and use scare resources.

2

What assumptions are made when drawing a PPC?

A PPC is drawn assuming a country has a fixed quantity & quality of resources and a constant state of technology.

3

What is productive efficiency?

This occurs when output is maximized from given inputs.

4

Why are PPC's drawn straight lines?

A straight line PPB indicates constant opportunity cost.Resources are equally efficient in the production of both items.Every further unit of X involves the sacrifice of the same quantity of good Y.

5

Why are PPC's drawn as a curve?

A concave production possibility curve indicates increasing opportunity cost, particular resources are better suited to making 1 item than another.
As more of good X is produced increasing amount of good Y have to be foregone to produce further unit of good X.

6

Why do PPC's shift?

An increase in the quantity or quality of resources increases an economy's productive potential and shifts the PPC curve to the right.

7

What is economic growth?

Increase in the quantity of goods/services produced by a country (GDP), enabled by an increase in the quantity or quality of resources.