ppf

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

  Scarcity and choice
• On a micro level, a PPF shows the maximum possible production of two goods or services
• A micro PPF illustrates the maximum possible production of all goods and services in an economy.

  False
• What does a macro PPF show?

  Maximum economy-wide production
• The shape of a PPF indicates the opportunity cost
• A concave PPF illustrates the law of increasing opportunity cost.
• What does a linear PPF indicate about opportunity cost?

  Constant opportunity cost
• Steps to illustrate opportunity cost on a micro PPF

  1️⃣ Identify two specific goods or services

  2️⃣ Draw the PPF curve

  3️⃣ Mark current production point

  4️⃣ Move to a new production point

  5️⃣ Calculate the opportunity cost
• Moving along a concave PPF to produce more of one good requires giving up increasing amounts of the other good
• What are the three types of efficiency illustrated on a PPF?

  Productive, allocative, Pareto
• A point outside the PPF is considered unattainable
• What does allocative efficiency ensure in an economy?

  Consumer demand is satisfied
• A PPF diagram can determine whether allocative efficiency is met.

  False
• What is the core principle of Pareto efficiency?

  Nobody can be made better off without making someone else worse off
• Any point on the PPF is Pareto efficient
• Steps to increase production along a PPF

  1️⃣ Use factors of production better

  2️⃣ Reallocate resources efficiently

  3️⃣ Shift the PPF outward
• What are two ways to shift a PPF outward?

  Increase quality and quantity of factors
• A PPF can shift unevenly to favor one good over another.
• A PPF shift that favors only one good indicates specialized improvement in its production
• What does the device 'Q-square' help remember for shifting a PPF?

  Quantity and quality of factors
• Improvements in labor quality can shift a PPF outward.
• A parallel shift in a PPF indicates balanced improvement in the production of both goods