LO:
a) The use of production possibility frontiers to depict:
c) The distinction between capital and consumer goods
a) The use of production possibility frontiers to depict:
- the maximum productive potential of an economy
- opportunity cost (through marginal analysis)
- economic growth or decline
- efficient or inefficient allocation of resources
- possible and unobtainable production
c) The distinction between capital and consumer goods
a) The use of production possibility frontiers
A production possibility frontier: shows the maximum possible combination of goods/services that can be produced using all available resources in a given period. Capital goods: used in the production of goods/services (e.g. machinery) Consumer goods: goods bought and used by consumers (e.g. the end product) |
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b) movements along and shift in PPF's
Diagram interpretation
A firm or a country can operate anywhere along the PPF, as the maximum productive potential is being reached. Thiscan change based upon specific circumstances. |
Shifts in the PPF
A outward shift of a PPF demonstrates economic growth: where the productive potential of the country is increasing
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An inward shift of a PPF is rare and is a sign of economic decline: where the productive potential of the country is decreasing
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Additional reading: http://www.bbc.co.uk/news/business-29910497
Causes of an outward shift:
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Additional reading: http://www.bbc.co.uk/news/world-latin-america-30779909
Causes of an inward shift:
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Factors of ProductionFactors of production - all 4 are needed for the production of all goods and services
Capital - the man-made goods used in manufacturing e.g. tractors, machines. NOT MONEY! Enterprise - individual willing to take risks Land - resources from the land (not the physical land) e.g. coal, water, fish stocks Labour - the employees working for the firm |
Q: how might economic growth be affected by allocating more resources to the production of capital goods? Consider the short run vs. the long run
c) The distinction between capital and consumer goods
Capital goods: used in the production of goods/services (e.g. machinery) Consumer goods: goods bought and used by consumers to fulfill needs and wants (e.g. the end product)
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