Econ micro flashcards-> 1.3 opportunity cost/ppcs

-make these for macro eni! (23/11/25) revisit in jan!

what do production possibility curves represent?

-the ideas of scarcity and choice in economics

what do ppcs show?

1) the maximum possible production of 2 goods/services within given factors of production
2) the various combinations of 2 goods/services that can be produced with given factors of production

what do ppcs tell us in a micro sense?

-the maximum possible production of 2 goods (e.g. laptops on the y axis and tablets on the x axis)
-the various combinations of 2 goods that can be produced depending on how a firm uses their factors of production→ e.g. at a certain point on the curve like a theoretical point b, 75 laptops will be produced and at this point only 50 tablets can be made too

what happens on a ppc if you want to produce more of one good than the other

you have to give up some of the other good→ e.g. if you want to make 20 more laptops, you have to sacrifice 10 tablets as you have to reallocate their factors of production→ links to opportunity cost definition (which is?)

what does a concave ppc represent?

the law of increasing opportunity cost

why does it represent this?

because as you go further along the curve, the factors of production are more suited to one good

what does a linear ppc represrnt?

law of constant opportunity cost

why is opportunity cost and ppcs useful?

they help a business/firm determine where their factors of production should go?

what is productive efficiency?

-any point directly on the ppc curve
-where all of the factors of production are used up to their maximum level, maximum production and no waste/unemployment of resources

what is productive ineffcieny?

-any point inside the curve
-not getting maximum use of our factors of production

what is any point outside of the curve?

-impossible/unattainable
-cannot be made with our current factors of production

what is key about allocative efficiency on a ppc?

-it can’t be determined, only found via consumer demand

what is pareto efficiency?

-the idea that nobody can be made better off without making somebody else worse off
-any point on a ppc is pareto efficient→ people who like one good are better off when its over produced while people who don’t like that good are worse off when its overproduced and results in their favourite good being underproduced

what do we do to increase production when a firm is operating inside the curve?

increase how they use their factors of production more efficiently by reallocating factors of production

what is the other way to increase production when you’re already on the curve but want more production?

shift the ppc

why is a shift in ppc better than reallocating resources?

because you don’t necessarily have to give up the amount of the other good/good on y axis to do it

how does a shift in a ppc occur? what does a firm do to make it happen?

increase the quantity and or the quality of their factors of production

what is the memory device to remember this?

Q²CELL

what does Q²CELL stand for?

Quantity or Quality of capital, enterprise, land, or labour

how do you increase the quantity or quality of labour?

-bring in more workers
-train the current workforce you have to be more skilled or more productive so they can make more output in a

how do you increase the quantity or quality of capital?

-increase the quantity by bringing in more machinery
-or upgrade the machinery to make it better quality

how do you increase the quantity or quality of land?

increase the amount of land they have→ this is usually for agricultural businesses