Diagrams

• What does a supply and demand diagram illustrate?


  It illustrates the relationship between price and quantity supplied and demanded.
• What does the letter P represent in a supply and demand diagram?


  Price
• What does the letter Q represent in a supply and demand diagram?


  Quantity
• What happens to demand when there is a change in price?


  A change in price causes a movement along the demand curve.
• What does P2 indicate in relation to price and demand?


  P2 shows that when the price increases, the demand decreases.
• What does the production possibility frontier (PPF) illustrate?


  • Different combinations of capital goods and consumer goods
  • The economy's production capacity when all resources are employed
  • Choices made within an economy regarding types of goods produced
• What do points x and y represent on the PPF diagram?


  Point x shows the maximum possible output of consumer goods, and point y shows the maximum possible output of capital goods.
• What does the line drawn between points x and y on the PPF represent?


  The line represents the economy's production possibility frontier.
• What does the PPF curve show?


  The PPF curve shows all the different combinations of consumer goods and capital goods that can be produced.
• What does the micro PPF diagram illustrate?


  • Production possibilities for a firm
  • Focus on specific goods like mobile phones and laptops
  • Maximum output scenarios for each type of good
• What does point x indicate in the micro PPF diagram?


  Point x shows the maximum possible output of laptops, providing no mobile phones are produced.
• What does point 2 on the PPF diagram indicate?


  Point 2 shows that the economy is not employing all the available resources, indicating productive inefficiency.
• What does a movement along the PPF curve from A to B signify?


  A movement along the PPF curve from A to B shows that more capital goods can be produced by reducing the production of consumer goods.
• What is associated with productive inefficiency in the PPF context?


  Productive inefficiency is associated with unemployment of resources.