Flashcards in Productivity Possibility Curves Deck (7)
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.
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.
What is productive efficiency?
This occurs when output is maximized from given inputs.
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.
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.
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.