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  3. PPF Basics

PPF Basics

  1. List the four economic ideas represented by the production possibilities curve, and explain each idea fully.
    1. Growth: increase in the inflation-adjusted market value of the goods & services produced by an economy over time
    2. Opportunity: the basic relationship between scarcity & choice.
    3. Cost: combination of gains and losses of any goods that have a value attached to them by any one individual
    4. Trade: exchange of goods or services between parties
  2. What does inefficiency inside the PPF curve mean? It means at the point we had resources, but they were not being used efficiently
  3. What is a historical example that illustrates a point inside the PPF? Guns vs. Butter
  4. Where will a country be on its production possibilities frontier? Inside (or under) the slope. This shows all available resources to their most powerful extent
  5. Can a country reach a point outside their current production possibilities frontier? Explain. A country can’t be outside of their current PPF without trade. While it is possible, it is extremely unlikely due to a scarcity in many resources.
  6. How can a country reach a point outside their current production possibilities frontier? A country can reach a point outside of their PPF when trade is used with an external producer.
  7. In your own words explain the economic principle of “Guns or Butter”.Guns or Butter describes the nations decision between investing more into defense mechanisms or investing more into a nations goods.
  8. Explain the production possibilities curve for a teenager who has two choices, working at a job to make money, and studying to get good grades.The PPF is like: Doing this to help benefit now or doing something for the better of the long run. You either are going to make money now, forget your studies even and live a mediocre lifestyle now or you’re going to study so that you can live above comforbility in a few years; bringing home more money than you would now.
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