Topic 1.3 PPF

1.3 Production Possibilities Graph

Production Possibilities Graph – Graph that shows alternative ways to use an economy’s resources

GRAPH






Efficiency – Using resources in such a way as to maximize the production of goods and services

Cost – To an economist cost is the alternative that is given up because of a decision. Note: this is not the definition that you may be used to because it does not necessarily refer to money.

Law of Increasing Costs – As we shift factors of production from making one good or service to and, the cost of producing the second item increases

Underutilization – Using fewer resources than an economy is capable of using

Shifts in the PPF

Growth => Increase in the FOP; Increase in technology.
⇨ Outward shift of the PPF

Contraction => Decrease in the FOP, possible from war.
=> Inward shift of the PPF