PPF Basics
- List the four economic ideas represented by the production possibilities curve, and explain each idea fully.
- Growth: increase in the inflation-adjusted market value of the goods & services produced by an economy over time
- Opportunity: the basic relationship between scarcity & choice.
- Cost: combination of gains and losses of any goods that have a value attached to them by any one individual
- Trade: exchange of goods or services between parties
- What does inefficiency inside the PPF curve mean? It means at the point we had resources, but they were not being used efficiently
- What is a historical example that illustrates a point inside the PPF? Guns vs. Butter
- 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
- 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.
- 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.
- 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.
- 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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