shifts & movements on PPF

• What does the PPF curve represent?

  Maximum productive potential of an economy
• What is the first assumption made when drawing the PPF curve?

  There are a fixed number of resources
• What does a fixed number of resources imply?

  No input or output changes in resources
• What is the second assumption made regarding technology in the PPF curve?

  There is a constant state of technology
• What does a movement along the PPF curve indicate?

  A change in the allocation of resources
• If the economy moves from point A to point B on the PPF curve, what happens to capital goods?

  They increase from k1 to k2
• What happens to consumer goods when moving from point A to point B on the PPF curve?

  They decrease from c1 to c2
• What is the opportunity cost of reallocating resources from consumer goods to capital goods?

  c1 minus c2 consumer goods
• How do consumer goods contribute to living standards?

  They provide direct utility to consumers
• What happens to living standards in the short run when fewer consumer goods are produced?

  Living standards decrease
• What is the long-term benefit of increasing capital goods production?

  Higher output of consumer goods
• What does an outward shift in the PPF curve represent?

  Economic growth
• What causes an outward shift in the PPF curve?

  Increase in resources or technology
• What is the effect of better technology on the PPF curve?

  Increases productivity and efficiency
• How does increased investment affect the PPF curve?

  Leads to more capital without sacrificing consumer goods
• What role does education and training play in shifting the PPF curve?

  Produces higher quality and more productive workers
• What does an inward shift in the PPF curve indicate?

  Economic decline
• What can cause the PPF curve to shift inwards?

  War or natural disasters destroying resources
• How do wars affect the PPF curve?

  They can destroy capital goods and resources
• What impact do natural disasters have on the PPF curve?

  They can destroy agricultural goods and resources
• What are the assumptions made when drawing the PPF curve?

  • Fixed number of resources
  • Constant state of technology
• What are the implications of reallocating resources from consumer goods to capital goods?

  • Increase in capital goods production
  • Decrease in consumer goods production
  • Short-term reduction in living standards
  • Long-term increase in consumer goods output
• What factors can lead to an outward shift in the PPF curve?

  • Increase in quantity or quality of resources
  • Advancements in technology
  • Increased investment in capital
  • Education and training improvements
• What factors can lead to an inward shift in the PPF curve?

  • War destroying resources
  • Natural disasters affecting production
• What does the PPF curve represent?

  Maximum productive potential of an economy
• What is the first assumption made when drawing the PPF curve?

  There are a fixed number of resources
• What does a constant state of technology imply?

  No improvement in technology over time
• What happens during a movement along the PPF curve?

  There is a reallocation of existing resources
• If the economy moves from point A to point B on the PPF curve, what is increasing?

  Capital goods from k1 to k2
• What are consumer goods?

  Goods providing direct utility to consumers
• What are the two types of consumer goods?

  Durable and non-durable goods
• What is the opportunity cost of reallocating resources from consumer goods to capital goods?

  Loss of consumer goods produced
• How do fewer consumer goods affect living standards in the short run?

  They reduce living standards temporarily
• What allows for higher output of consumer goods in the long run?

  Increased production of capital goods
• What does an outward shift in the PPF curve represent?

  Economic growth and increased productive potential
• What can cause the PPF curve to shift outward?

  Increase in resources or better technology
• How does investment affect the PPF curve?

  It leads to more capital and production
• What role does education and training play in shifting the PPF curve?

  Produces higher quality and more productive workers
• What does an inward shift of the PPF curve indicate?

  Economic decline and decreased productive potential
• What are some reasons for an inward shift in the PPF curve?

  War or natural disasters destroying resources