Economics theme 1.1

• What are production possibility frontiers (PPFs) used to illustrate in economics?

  Scarcity and choice
• How can production possibility curves be analyzed?

  From both micro and macro perspectives
• What does a micro-level PPF show?


  The maximum possible production of two goods or services with given factors of production
• What does a macro-level PPF indicate?

  The maximum possible production of all goods and services in the economy
• What concepts can be illustrated using PPF diagrams?

  Opportunity cost and efficiency
• How does the shape of a PPF relate to opportunity cost?

  The shape indicates the opportunity cost of producing goods and services
• If a firm reallocates factors of production to increase tablet production from 50 to 60, what might they give up?

  Some laptops, specifically 15 units
• What does a concave PPF indicate about opportunity cost?

  It illustrates the law of increasing opportunity cost
• What happens to laptop production when a firm increases tablet production from 60 to 70 tablets?

  Laptop production decreases significantly, potentially by 30 units
• How does a linear PPF differ from a concave PPF?

  A linear PPF illustrates constant opportunity cost, while a concave PPF illustrates increasing opportunity cost
• What are the three types of efficiency illustrated by PPFs?

  • Productive efficiency
  • Allocative efficiency
  • Dynamic efficiency