PPF

• What does the production possibility frontier (PPF) represent?

  The PPF shows the maximum output combinations of two products using all available factors of production efficiently.
• What types of products can the PPF represent?

  The PPF can represent combinations of goods or services.
• What are the characteristics of combinations on the PPF?

  • Combinations on the PPF (like A, B, and C) are efficient output combinations.
  • All available land, labor, and capital resources are utilized efficiently.
• What happens to combinations of goods and services outside the PPF?

  • Combinations outside the PPF are unattainable at the present moment.
  • To reach them, an increase in factor resources or improvements in efficiency or technology is needed.
• What is opportunity cost?

  Opportunity cost is the cost of a choice measured in terms of the next best alternative that is sacrificed.
• How does the shape of the PPF illustrate diminishing returns?

  The PPF shape shows that as more resources are allocated to one product, the marginal output decreases.
• What does a straight line PPF indicate?

  • A straight line PPF suggests that factors of production are substitutable with no loss of productivity.
  • The marginal opportunity cost remains constant.
• What is the marginal opportunity cost in a linear PPF?

  The marginal opportunity cost is constant as resources are switched between goods.
• What causes the PPF to shift outwards?

  • Improved efficiency of factors of production.
  • Better management of factor inputs.
  • Increased availability of resources.
  • Innovation and invention.
  • Discovery of new natural resources.
• Can the PPF shift inwards, and if so, why?

  Yes, the PPF can shift inwards due to natural disasters, civil war, or brain drain effects.
• What is the difference between resource depreciation and resource depletion?

  • Resource depreciation: Existing resources become less productive due to wear and tear.
  • Resource depletion: Resources are exhausted or destroyed, reducing availability.
• How does economic recovery relate to the PPF?

  Economic recovery moves the economy closer to the PPF, reducing underutilized resources.
• What does an outward shift of the PPF indicate about a country's productive capacity?

  An outward shift indicates an increase in a country's productive potential and capacity.
• What do production possibility frontiers (PPF) show?

  The maximum amount of two goods or services an economy can produce
• What is the basic problem in Economics regarding production?

  How to allocate scarce resources when producing two types of goods or services
• What does the PPF diagram illustrate regarding houses and vehicles?

  • Maximum number of houses (horizontal axis) and vehicles (vertical axis)
  • Shows trade-offs in production
  • Points on the curve indicate productive efficiency
• What is a trade-off in the context of production possibility frontiers?

  A choice between conflicting objectives due to limited resources
• Why are all points on the PPF considered productively efficient?

  All resources are used as efficiently as possible
• What distinguishes allocative efficiency from productive efficiency on the PPF?

  Allocative efficiency reflects the production of goods that society wants or needs
• What does point E on the PPF represent?

  It lies outside the PPF and is not achievable with current resources
• What does point F on the PPF indicate?

  It lies inside the PPF and represents productively inefficient production
• What is the opportunity cost of moving from point A to point B on the PPF?

  The lost production of 40,000 vehicles for 21,500 extra houses
• How is opportunity cost used in Economics?

  To ensure a more efficient allocation of resources
• What are some problems with using the concept of opportunity cost?

  • Not all alternatives may be known
  • Lack of information on alternatives and their costs
  • Some factors have no alternative uses
  • Difficulty in switching some factors to alternative uses
• What does an outward shift of the PPF indicate?

  Economic growth
• What causes the PPF to shift outward?

  Increased resources or improved technology
• What happens to the PPF after a natural disaster?

  It shifts inwards, indicating negative economic growth
• How does improved technology affect the PPF?

  It allows more output to be produced using the same resources
• What are the warm-up questions related to PPF?

  1. Explain what a production possibility frontier (PPF) shows.
  2. What is meant by a trade-off?
  3. Describe why a PPF might move outwards and what it means if it moves inwards.
• What are the exam questions related to PPF?

  1. Identify which combinations of cars and butter cannot be produced with existing resources.
  2. Explain the term opportunity cost using the PPF diagram.
• What does a production possibility curve (PPC) illustrate?

  A PPC shows how much an economy can produce given existing resources.
• How is a PPC typically represented graphically?

  A PPC is normally drawn as an arc with one commodity on the x-axis and another on the y-axis.
• What does each point on the PPC represent?

  Each point on the PPC shows the most efficient quantity of two commodities that can be supplied with available resources.
• Why is the PPC typically drawn as concave to the origin?

  It is based on the assumption that production is subject to the law of diminishing returns.
• What is required to shift the PPC outward from PPC1 to PPC2?

  An increase in factor inputs or an increase in efficiency is needed.
• What does an outward shift in the PPC signify?

  It signifies economic growth and an increase in the country's potential output.
• How does an outward shift in the PPC affect opportunity cost?

  It allows for an increase in the output of one commodity without sacrificing the output of another.
• If the output of beef is maintained at output B, what happens when the PPC shifts outward?

  The output of wheat can increase without sacrificing any output of beef.
• What happens if we keep the output of wheat constant at A after an outward shift of the PPC?

  We can increase our production of beef without losing any output of wheat.
• What is an example of a factor that can cause a pivotal outward shift in the PPC?

  An improvement in productivity in the beef sector can cause such a shift.