Topic 2: PPC/PPF

• Production Possibility Frontier is a basic economic model which shows the tradeoffs individuals and the society face in how to use scarce resources.
• The Production Possibility Frontier shows the maximum/limit combination of goods and services which can be produced given the existing level of resources and technology available.
• The Production Possibility Frontier depicts the choices we have to make between two competing wants and, or needs.
• The government should enforce minimum prices for beers and lagers sold in supermarkets and off-licences in a bid to control alcohol consumption.
• Australia and New Zealand can both produce apples and oranges.
• Using the same amount of resources, Australia and New Zealand can both produce apples and oranges as shown in the following table, measured in thousands of tonnes.
• Higher interest rates will reduce house prices.
• Resources are limited, as a result the production possibilities frontier always slopes downward to the right.
• The negative slope of the production possibility frontier reflects opportunity cost.
• The opportunity cost of producing more meals is that fewer web pages can be created.
• The opportunity cost of creating more web pages means that fewer meals can be produced.
• The Production Possibility Frontier shows what is possible in our use of scarce resources between two competing wants and, or needs.
• The Production Possibility Frontier is a graph that shows the maximum/limit combination of goods and services which can be produced given the existing level of resources and technology available.
• Decreasing opportunity cost occurs when the country moves from point A to point B on the PPF, where 1 car costs 2 smartphones.
• Economic goods are scarce and therefore have an opportunity cost.
• An economic good is a good or service that has a benefit (utility) to society.
• Free goods have no opportunity cost as they are abundant and cannot be traded, and there are no prices attached to them, for instance air and sea.
• Normative statements are value judgements and are subjective statements of opinion rather than a fact that can be tested by looking at the available evidence and used verbs such as, ‘might, should, ought to’.
• Countries will remove resources not suited for producing cheesecake to making cars, for instance an engineer.
• Positive statements are statements of fact that can be tested, amended or rejected by looking at the evidence, and are free of value judgements.
• Increasing opportunity cost occurs when resources best suited for car production are used for cars and those for cheesecakes used to produce cheesecake.
• As one moves along the PPF with the increase in car production, less and less smartphones is given up because the resources needed to produce become abundant, reducing the cost to produce cars and hence car production becomes cheaper.
• The PPF is generally convex to the origin, indicating decreasing opportunity cost.
• The ratio of X and Y gets better as you move towards the end of the line, indicating decreasing opportunity cost.
• As the country moves down a PPF that is bowed outwards, the opportunity cost in terms of the other good to be given up also increases because resources are not perfectly suited for the production of both goods.
• As more and more of good ‘Y’ is sacrificed, more and more of good ‘X’ is gained.
• Increasing opportunity cost occurs when resources are not perfectly suited for the production of both goods.
• Economic Growth causes the PPF Curve to move outwards, indicating that the firm’s productive capacity has expanded or the economy has benefited from economic growth.
• The slope of the PPF Curve implies that MC (marginal opportunity cost) is 4/10 of a crab for one pineapple (or 4 crabs for 10 pineapples).
• The opportunity cost of points on or below the PPF is represented by points on or below the boundary.
• The opportunity cost of making one saucers is 85 crabs.
• The formula to calculate the slope of the PPF Curve is Rise / run or Change in y /change in x ( YD-YC / XD –X C).
• The law of increasing opportunity costs states that as you increase production of one good, the opportunity cost to produce an additional good will increase.
• A potter can make any combination of items using the following options: Cups, Saucers, Plates, Bowls.
• A production possibility curve that takes a linear form illustrates a constant return or constant opportunity cost.
• The slope of the PPF suggests an infinite number of choices of which only one can be chosen.
• Each country has a fix amount of factors of production to produce goods and services.
• The PPF is generally concave to the origin, indicating an increase in opportunity cost as you move down the vertical axis.
• For H to be attainable, the economy must grow causing the curve to shift outwards to the right.
• There are three types of opportunity cost: Constant opportunity cost, Increasing opportunity cost/Decreasing returns to scale, and Decreasing opportunity cost/ increasing return to scale.