1.5

• What is a production possibility frontier (PPF)?

  A curve depicting the maximum possible output combinations of two goods or services an economy can produce when resources are fully and efficiently employed
• what does a point on the PPF show?

  productive efficiency - resources are fully and efficiently used
• what does a point inside the PPF show?

  productive inefficiency - not all resources are being used (e.g unemployment or unused factories)
• what does a point outside the PPF show?

  an unattainable level of output with current resources and technology
• what causes the PPF to shift outwards?

  • economic growth
  • more/better resources
  • technological progstress
  • improved productivity
• what causes the PPF to shift inward?

  • loss of resources (e.g war, pandemic, natural disaster)
  • decreased productivty
• what is opportunity cost shown on a PPF?

  its the amount of one good you give up to produce more of another good - shown by the slope of the curve
• what does a concave PPF curve represent?

  increasing opportunity cost - as you produce more of one good, the opportunity cost of giving up the other increases. this reflects specialisation of resources
• what does a linear PPF curve represent?

  constant opportunity costs - resources are equally suited to producing both goods (not common in real life)
• what is productive efficiency on a PPF?

  when output is produces at the lowest cost, using all available resources - represented by any point of the curve
• what s allocative efficiency on a PPF?

  the best mix of goods and services for society - occurs at one specific points on the PPF, where marginal cost = marginal benefit
• what does a moment along the PPF show?

  a reallocation of resources from one good to another, showing the opportunity cost involved
• what is the link between scarcity and the PPF?

  scarcity means we can’t produce beyond the PPF, so choices must be made, involving opportunity costs
• how can a country go beyond its current PPF in the long run?

  by increasing factor productivity, improving education/training or investing in new technology and infrastructure
• how can PPFs be used to illustrate short run vs long run growth?

  • short-run growth - moving closer to the PFF
  • long-run growth - shifting the PPF outwards
• technical progress defintion

  new and better ways of making goods and new techniques for producing more output from scarce resources
• economic growth definiton

  the increase in the potential level of real output the economy can produce over a period of time
• full employment definition

  when all who are able and willing to work are employed
• unemployment definition

  when not all of those who are able and willing to work are employed
• productive efficiency definition

  for the economy as a whole occurs when it is impossible to produce more of one good without producing less of another. for a firm it occurs when the average total cost of production is minimised