Term
| Production Possibilities Frontier (PPF) |
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Definition
- The boundary between combinations of goods and services that can be produced and combinations that can not be prouced given the available factors of production & the state of technology.Is a valuable tool for illustrating the effects of scarcity and its consequences
- It puts 3 features of Production Possibilities in sharp focus. They are the distinction bet:
Attainable & Unattainable Combinations Full Employment & Unemployment Tradeoffs and Free Lunch
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Term
1.___Occurs in production possibilities when all the available factors of production are being used |
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Definition
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1.____Occurs when some factors of production are not used |
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Definition
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Term
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Definition
| Is a constraint or limit to what is possible that forces an exchange or substitution of one thing for something else |
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Term
When resources are fully employed, where does production occur in the PPF? |
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Definition
It occurs at points on the PPF |
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| When resources are unemployed, where does production occur in the PPF? |
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Definition
| At a point inside the PPF |
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Term
| What is the formula to calculate opportunity cost? |
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Definition
Opportunity cost = decrease in x / increase in y ! : If opportunity cost = x then x = Δy ÷Δx |
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Term
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| Concentrating on the production of only one good |
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Term
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Definition
| The ability of a person to perform an activity or produce a good or service at a lower opportunity cost than someone else |
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Definition
| When one person is more productive than another person in several or even all activities |
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| Explain why it is not possibe for anyone to have a comparative advantage on everything even if they have an absolute advantage on all activities? |
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Definition
| It is not possible for anyone to have a comparable advantage on everything even though they might have an absolute advantage in everything because of opportunity cost. So gains from specialization & trade are always available when opportunity costs diverge |
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Term
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Definition
- The sustained expansion of the production possibilities
- Brings a benefit - expanded production possibilities in the future
- Economic Growth is not free. To make it happen, we must decrease the production of goods for consumption now. Even with economic growth we continue to face opportunity costs.
- It rotates the PPF outward to a new PPF
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Term
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Definition
| Is the development of new goods and services and of better ways to producing existing goods and services |
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Term
| Expansion of Human Capital |
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Definition
| Is the improvement in the quality of labour that comes from educatoin, on-the-job training & work experience |
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Definition
| Is the growth of capital resources |
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Term
| What are the 3 features of production possibilities? |
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Definition
It distinguishes bet. - Attainable & Unattainable combinations
- Full Employment & Unemployment
- Trade-offs and Free Lunches
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Term
| When is production possibilities attainable? |
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Definition
| If the points are on or inside the PPF |
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Term
| When are production possibilities unattainable? |
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Definition
| If the points are outside the PPF |
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Term
| What are the 3 key factors that influence economic growth? |
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Definition
- technological change
- Expansion of human capital
- Capital Accumulation
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Term
| Use the production possibilities frontier to illustrate the economic problem? |
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Definition
Is the boundary between the combinations of goods and services that can be produced and combinations that can not be produced given the available factors of production and state of technology 3 key ideas of PPF: 1. Attainable & unattainable; 2. Full employment and unemployment; 3. Tradeoffs and free lunches
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Term
How do we calculate opportunity cost |
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| Explain how specialization and trade expand production possibilities? |
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Term
| Explain how technological change & increase in capital & human capital expand production possibilities |
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