What are the differences between productive and allocative efficiency?
Productive efficiency means producing at the lowest cost (on the PPC), while allocative efficiency means producing the combination of goods society desires most.
What are the differences between constant and increasing opportunity cost?
Constant opportunity cost means resources are perfectly adaptable (straight-line PPC), while increasing opportunity cost means they are not (bowed-out PPC).
Differentiate between economic growth and economic contraction on a PPC.
Economic growth is shown by a rightward shift of the PPC, while economic contraction is shown by a leftward shift.
What is the difference between a point inside and a point outside the PPC?
A point inside the PPC represents inefficiency while a point outside represents a production level that is currently unattainable.
How do capital goods and consumer goods affect future economic growth?
Producing more capital goods leads to greater future economic growth compared to producing more consumer goods.
Compare the impact of trade and technology on the PPC.
Both trade and improvements in technology can shift the PPC outwards, but trade allows consumption beyond the PPC, while technology increases production capacity.
What is the difference between scarcity and opportunity cost?
Scarcity is the fundamental economic problem of limited resources, while opportunity cost is the value of the next best alternative forgone when making a choice.
How do changes in quantity versus quality of resources impact the PPC?
An increase in either quantity or quality of resources shifts the PPC outward, but improvements in quality can lead to more efficient production.
What are the differences between a point inside and on the PPC?
A point inside the PPC indicates inefficiency, while a point on the PPC indicates productive efficiency.
Compare the effects of a recession and technological advancement on the PPC.
A recession causes the economy to operate inside the PPC, while technological advancement shifts the PPC outward.
How does the PPC illustrate scarcity?
It shows the trade-offs between producing one good versus another, given a fixed set of resources.
How does producing more capital goods affect future economic growth?
A country that produces more capital goods will experience greater economic growth in the future.
How does improved technology affect the PPC?
Improvements in technology allow an economy to produce more of one or both goods, shifting the PPC outwards.
How does trade affect a country's consumption possibilities?
Trade can allow a country to consume beyond its own PPC, effectively shifting its consumption possibilities outwards.
A country is operating inside its PPC. What does this mean?
The country is operating inefficiently, and could produce more of at least one good without reducing production of another.
A point on the PPC represents what?
A point on the PPC represents productive efficiency.
How do changes in the quantity/quality of resources affect the PPC?
An increase shifts the PPC outwards (rightward), indicating economic growth. A decrease shifts the PPC inwards (leftward), indicating economic contraction.
What does a point significantly below the PPC indicate?
Severe inefficiency, often associated with a recession.
How does the PPC show opportunity cost?
It illustrates what you give up when you shift production from one combination to another.
What are the key assumptions when using the PPC?
Two goods, fixed resources, and fixed technology.
What does the slope of a PPC represent?
The opportunity cost of producing one good in terms of the other.
On a PPC graph, what does a movement along the curve signify?
A reallocation of resources from the production of one good to another.
How is economic growth depicted on a PPC graph?
As an outward shift of the entire curve, indicating an increase in the economy's productive capacity.
How is underutilization of resources shown on a PPC graph?
As a point inside the PPC, indicating that the economy is not producing at its full potential.
How is a trade-off between goods represented on a PPC?
By the negative slope of the curve, showing that producing more of one good requires producing less of the other.
What does a PPC that is linear imply?
Resources are equally suited to the production of both goods, resulting in a constant opportunity cost.
What does a PPC that is bowed outward imply?
Increasing opportunity costs, indicating that resources are not equally suited to the production of both goods.
If a PPC shifts outward more along the x-axis than the y-axis, what does this imply?
The change (e.g., technological improvement) primarily benefited the production of the good on the x-axis.
How would a natural disaster be represented on a PPC graph?
As an inward shift of the entire curve, reflecting a decrease in the economy's productive capacity.
What does a point beyond the current PPC indicate?
A production level that is currently unattainable with the given resources and technology.
