Production possibility frontiers (PPF)

What does a PPF show?

How much an economy can produce when all factors are fully and efficiently employed

What 3 things does a PPF illustrate?

• Scarcity

• Trade offs

• Opportunity costs

What 3 assumptions does the PPF make?

• Fixed resources

• A given level of technology

• Full resource utilisation

When does a PPF shift outwards?

When there is an increase in an economy’s potential to produce goods and services

What does an outward shift on a PPF represent and what does this allow?

economic growth which allows this economy to produce more of both goods or to improve its production capabilities

What 4 factors can lead to an outward shift on a PPF?

• Increase in Natural Resources

• Technological Advancements

• Human Capital Development

• Investment in Capital

What is Human Capital Development?

Better educated and more skilled workers can increase productivity, leading to the production of more goods and services

When does productive efficiency occur?

When an economy is producing goods and services at the lowest possible cost, given its existing technology and resources

When does allocative efficiency occur?

When an economy is producing a mix of goods and services that best align with the consumer preferences and social needs.

What is dynamic efficiency?

An economy’s ability to grow and expand its production possibilities over time.

What are capital goods?

Goods that are used to make consumer goods and services

What are consumer goods and services?

Goods and services which satisfy our needs and wants directly