What is held constant in a production possibilities curve?
In the context of a PPF, opportunity cost is directly related to the shape of the curve (see below). If the shape of the PPF curve is a straight-line, the opportunity cost is constant as production of different goods is changing. But, opportunity cost usually will vary depending on the start and end points.
Which of the following are assumptions used when drawing a production possibilities frontier?
The four key assumptions underlying production possibilities analysis are: (1) resources are used to produce one or both of only two goods, (2) the quantities of the resources do not change, (3) technology and production techniques do not change, and (4) resources are used in a technically efficient way.
What does a production possibilities frontier illustrate?
In business analysis, the production possibility frontier (PPF) is a curve illustrating the varying amounts of two products that can be produced when both depend on the same finite resources. The PPF demonstrates that the production of one commodity may increase only if the production of the other commodity decreases.
What does a production possibilities frontier illustrate quizlet?
A production possibility frontier (PPF) shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed. Opportunity Cost and the PPF. Reallocating scarce resources from one product to another involves an opportunity cost.
What are the four factors of production?
Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship. The first factor of production is land, but this includes any natural resource used to produce goods and services.
What is production possibility curve explain with diagram?
The production possibility curve represents graphically alternative production possibilities open to an economy. The productive resources of the community can be used for the production of various alternative goods. But since they are scarce, a choice has to be made between the alternative goods that can be produced.
What are the three assumptions of PPC?
The basic assumptions of production possibility curve are:
- The resources are given and remain constant.
- The technology used in the production process remains constant.
- The resources and technology are fully and efficiently utilized.
- The technique of production remains constant.
What are the 3 shifters of PPC?
Shifters of the Production Possibilities Curve (PPC)
- Change in the quantity or quality of resources.
- Change in technology.
Why is PPC concave?
PPC is concave to the origin because of increasing Marginal opportunity cost. This is because inorder to increase the production of one good by 1 unit more and more units of the other good have to be sacriced since the resources are limited and are not equally efficient in the production of both the goods.
What is the importance of production possibility frontier?
What Is the Purpose of the PPF? In macroeconomics, the PPF shows the point in which a country’s economy is at its most efficient, producing consumer goods and services by optimally allocating resources. It considers production factors and determines the best combinations of goods.
What is production possibilities frontier example?
The curve measures the trade-off between producing one good versus another. For example, say an economy can produce 20,000 oranges and 120,000 apples. If it wants to produce more oranges, it must produce fewer apples. On the chart, Point C shows that if it produces 45,000 oranges, it can only produce 85,000 apples.
How do you calculate the production possibility frontier?
To calculate the production possibility frontier, choose two variables to compare and create a column within the spreadsheet for each variable. After filling the columns with each variable’s values, each row will have values that represent a data set that can be compared to determine production possibility values.
How is underutilization depicted on a production possibilities frontier quizlet?
Underutilization is shown by any point that appears inside the production possibilities frontier. This law states that as production switches from one item to another (for example, from shoes to watermelons), more and more resources are necessary to increase production of the second item (watermelons).
How does the production possibilities curve show economic growth?
Economic growth is demonstrated by an outward shift of the production possibilities curve. Growth expands the frontier, causing it to shift outward. To illustrate the process of economic growth, click the [Growth] button. Point M can be reached when economic growth expands the frontier.
How does the production possibilities curve illustrate scarcity?
The addition of the PPF curve thus illustrates scarcity by dividing production space into attainable and unattainable levels of production. However, not just any PPF curve illustrates scarcity. For this PPF curve, the production of more of both goods is attained by moving upward along the frontier.