PPF/PPC Diagram

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

  Scarcity and choice
• How can production possibility curves be analyzed?

  From both micro and macro perspectives
• What does a micro-level PPF show?

  The maximum possible production of two goods or services with given factors of production
• What does a macro-level PPF indicate?

  The maximum possible production of all goods and services in the economy
• What concepts can be illustrated using PPF diagrams?

  Opportunity cost and efficiency
• How does the shape of a PPF relate to opportunity cost?

  A concave PPF indicates increasing opportunity cost
• If a firm reallocates factors of production to increase tablet production from 50 to 60, what might they give up?

  Some laptops
• What does a concave PPF indicate about the opportunity cost of production?

  It shows that more of one good must be given up to produce additional units of another good
• What happens to laptop production when a firm increases tablet production from 60 to 70 tablets?

  Laptop production decreases significantly
• What differentiates a micro PPF from a macro PPF?

  Micro PPF focuses on specific goods, while macro PPF encompasses all goods and services
• What does the law of increasing opportunity cost imply?

  As production of one good increases, more of another good must be sacrificed
• What are the three types of efficiency discussed in relation to PPFs?

  Productive efficiency, allocative efficiency, and Pareto efficiency
• What does productive efficiency mean in the context of a PPF?

  Using all factors of production to their maximum level without waste
• What does a point inside the PPF curve represent?

  Productive inefficiency
• What does point E on a PPF represent?

  An unattainable production level with given factors of production
• Why can't allocative efficiency be determined from a PPF diagram?

  Because consumer demand is not represented
• What is Pareto efficiency?

  No one can be made better off without making someone else worse off
• How can a business increase production if it is operating at a productively inefficient point on a PPF?

  By using factors of production more effectively
• What can a business do if it is already at a productively efficient point on the PPF?

  Reallocate factors of production to specialize in a different good
• What does shifting the PPF curve indicate?

  An increase in the quantity or quality of factors of production
• How can a PPF curve shift favoring one good over another occur?

  By increasing the quantity or quality of factors of production specialized for that good
• What are the key concepts illustrated by production possibility frontiers (PPFs)?

  • Scarcity
  • Choice
  • Opportunity cost
  • Efficiency
  • Productive efficiency
  • Pareto efficiency
• What are the methods to increase production on a PPF?

  1. Use factors of production more effectively
  2. Reallocate factors of production
  3. Shift the PPF curve by increasing quantity or quality of factors of production
• What limitation does the PPF diagram have regarding the number of goods it represents?

  PPF diagrams typically only show the trade-off between two goods, oversimplifying real-world economies.
• What are the key limitations of PPF diagrams?

  - Assumes full efficiency - Simplifies to two goods - Static representation - Assumes homogeneous resources
• What factors contribute to an economy not operating at full efficiency?

  - Unemployment - Underutilization of resources - Inefficient production methods
• What do extension and contraction of a Demand Curve refer to?

  They refer to short-term changes in an economy's production capacity.
• Are the changes in extension and contraction of demand curve permanent?

  No, these changes are temporary.
• What is an extension in the context of a demand curve?

  An extension is a temporary increase in production capacity.
• What is a contraction in the context of a demand curve?

  A contraction is a temporary decrease in production capacity.
• Provide an example of a situation that might cause a demand curve extension.

  An economy might experience a demand curve extension during a period of low unemployment.
• Provide an example of a situation that might cause a demand curve contraction.

  An economy might experience a contraction during a natural disaster.
• What do increase and decrease of a demand curve refer to?

  They refer to long-term changes in an economy's production capacity.
• Are the changes in increase and decrease of a demand curve temporary?

  No, these changes are permanent or long-lasting.
• What causes an increase in a demand curve?

  An increase is caused by long-term changes that enhance production capacity.
• What does a decrease in a demand curve represent?

  A decrease represents a shift inward of the entire demand curve.
• Provide an example of a situation that might cause a PPF increase.

  An economy might experience a PPF increase due to technological advancements.
• Provide an example of a situation that might cause a PPF decrease.


  An economy might experience a PPF decrease due to environmental degradation affecting natural resources.
• What type of PPF shift does a temporary government policy allowing longer working hours represent?

  Extension followed by contraction
• What happens to production after a temporary extension due to a policy ends?

  Production returns to normal levels.