Theme 1 Economics

• What does a micro-level production possibility frontier (PPF) show?

  Maximum production of two goods with given factors
• What does a macro-level PPF represent?


  Maximum production of all goods in an economy
• What does a concave PPF illustrate?

  Law of increasing opportunity cost
• If a firm moves from producing 50 tablets to 60 tablets and gives up 15 laptops, what is the opportunity cost?

  15 laptops
• What does a linear PPF indicate?

  Constant opportunity cost
• What is productive efficiency on a PPF?

  Using all factors of production to their maximum
• What does a point inside the PPF curve represent?

  Productive inefficiency
• What is allocative efficiency?

  Producing goods that satisfy consumer demand
• What is Pareto efficiency on a PPF?

  No one can be made better off without making someone worse off
• How can a firm increase production from a point inside the PPF?

  Use factors of production more efficiently
• What does shifting the PPF curve outward indicate?

  Increase in quantity or quality of factors of production
• If a PPF shifts favoring only one good, what does this imply?

  Improvement in factors of production specific to that good
• What are the three types of efficiency shown on a PPF?

  • Productive efficiency
  • Allocative efficiency
  • Pareto efficiency
• How can a firm shift its PPF curve outward?

  • Increase quantity of factors of production
  • Improve quality of factors of production
• What does a point outside the PPF curve represent?

  • Unattainable with current factors of production
• What is the law of increasing opportunity cost?

  • As production of one good increases, more of the other good must be given up
• What is the difference between micro and macro PPF?

  • Micro PPF: Two specific goods
  • Macro PPF: All goods in an economy
• What does a linear PPF indicate about opportunity cost?

  • Opportunity cost remains constant
• What does a concave PPF indicate about opportunity cost?

  • Opportunity cost increases as production of one good increases
• What is the significance of a point on the PPF curve?

  • Productively and Pareto efficient
• What is the significance of a point inside the PPF curve?

  • Productively inefficient
• What is the significance of a point outside the PPF curve?

  • Unattainable with current factors of production
• What is the role of factors of production in shifting the PPF?

  • Increasing quantity or quality shifts the PPF outward
• What is the role of reallocation in moving along the PPF?

  • Reallocating factors of production allows movement along the PPF
• What is the role of specialization in opportunity cost?

  • Specialization increases opportunity cost as production shifts
• What is the role of consumer demand in allocative efficiency?

  • Allocative efficiency depends on producing goods that satisfy consumer demand
• What is the role of Pareto efficiency in economic decisions?

  • Pareto efficiency ensures no one can be made better off without making someone worse off
• What is the role of productive efficiency in economic decisions?

  • Productive efficiency ensures maximum use of factors of production
• What is the role of allocative efficiency in economic decisions?

  • Allocative efficiency ensures production meets consumer demand
• What is the role of opportunity cost in economic decisions?

  • Opportunity cost helps in understanding trade-offs in production
• What is the role of the PPF in economic analysis?

  • PPF helps in understanding scarcity, choice, and efficiency
• What is the role of the PPF in understanding economic growth?

  • PPF shifts outward indicate economic growth
• What is the role of the PPF in understanding economic decline?

  • PPF shifts inward indicate economic decline
• What is the role of the PPF in understanding economic trade-offs?

  • PPF helps in understanding trade-offs between goods
• What is the role of the PPF in understanding economic efficiency?

  • PPF helps in understanding productive, allocative, and Pareto efficiency
• What is the role of the PPF in understanding economic inefficiency?

  • PPF helps in understanding productive inefficiency
• What is the role of the PPF in understanding economic unattainability?

  • PPF helps in understanding unattainable production points
• What is the role of the PPF in understanding economic specialization?

  • PPF helps in understanding specialization and opportunity cost
• What is the role of the PPF in understanding economic reallocation?

  • PPF helps in understanding reallocation of factors of production
• What is the role of the PPF in understanding economic growth factors?

  • PPF helps in understanding factors that shift the curve outward