2281 · 1.4
Production possibility curve diagrams flashcards
Revision flashcards for Cambridge 2281 Production possibility curve diagrams (syllabus 1.4). Flip, recall, then mark a real past-paper question.
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What is a Production Possibility Curve (PPC)?
A curve showing the maximum possible combinations of two goods or services that can be produced in an economy, given the available resources and technology are fully and efficiently employed.
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What does a point inside the PPC represent?
Productive inefficiency. It indicates that resources are not being fully utilised (e.g., unemployment) or are being used inefficiently. More of at least one good, and possibly both, could be produced.
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Why is a realistic PPC typically drawn as a curve concave to the origin?
This illustrates the law of increasing opportunity cost. As you produce more of one good, you must use resources that are less suited for its production, meaning you have to sacrifice increasingly larger amounts of the other good for each additional unit.
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What causes an outward, parallel shift of the PPC?
Long-run economic growth. This is caused by an increase in the quantity (e.g., more labour or capital) or an improvement in the quality (e.g., better technology or education) of factors of production that benefits both goods.
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Distinguish between a movement along the PPC and a shift of the PPC.
A movement along the PPC shows a change in the combination of goods produced (a choice), incurring an opportunity cost. A shift of the entire PPC shows a change in the economy's total productive capacity (e.g., economic growth).
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What does a point outside the PPC represent?
An unattainable combination of goods with the current level of resources and technology. It can only be reached through economic growth (an outward shift of the PPC).
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What does a point *on* the PPC represent in terms of efficiency?
Productive efficiency. This means all resources are fully and efficiently employed, and it's impossible to produce more of one good without producing less of another.
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What could cause an inward shift of the PPC?
A decrease in the quantity or quality of an economy's factors of production. Examples include natural disasters, war, a fall in the working population, or the depletion of natural resources.