Production Productivity Frontier 1.1.4

What is the production possibility frontier (PPF)?

A graphical representation that illustrates the maximum output of two goods or services that and economy can produce given its available recourses and technology

What is meant by scarcity?

There is a limited availability of resources related to unlimited wants of a society.

What are trade offs?

Producing more of one good necessitates producing less of another.

What are diminishing returns?

The opportunity cost of producing extra of one good increasing as you move down the PPF

What happens to the opportunity cost when the marginal productivity of resources is declining?

It will increase

When does a PPF shift outwards?

When there is an increase in an economies potential to produce goods and services.

What are some causes of an outwards shift in the PPF?

• Increase in natural resources

• Technological advancements

• Human capital development (better educated/ skilled)

• Investment in capital

Why does higher productivity cause an outward shift in the PPF?

It increases the output per unit of an input used in production

How does improved management of factor inputs cause an outwards shift in the PPF?

Better management reduces waste and improves product quality

How does innovation and invention of new products and resources cause an outward shift in the PPF?

Improves production processes increases efficiency

What does productive efficiency occur?

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

Where is productive efficiency achieved on the PPF?

Achieved when the economy is operating on the PPF curve.

When does allocative efficiency occur?

Occurs when an economy is producing a mix of goods and services that best aligns with consumer preferences and social needs.

What does allocative efficiency represent?

IT represents the ideal distribution of resources among different goods to maximise overall satisfaction.

When is allocative efficiency achieved on the PPF?

Achieved when the economy is producing at a point on the PPF that matches societies preferences

What does dynamic efficiency refer to?

Refers to an economies ability to grow and expand its production possibilities over time.

When is dynamic efficiency achieved on the PPF?

Involves shifting the PPF curve outward which indicates the economy achieving dynamic efficiency.

How can you increase labour supply?

• Increase net migration- can be targeted )skills/ professions)

• Subsidised childcare

• Retirement age (67)

• Increase NLW (National Living Wage)

• Tax incentives to fund paid work