What is the Production Possibilities Frontier (PPF)?

It shows the maximum possible combinations of two or more goods that an economy can produce with its available resources and technology.

What do points along the PPF represent?

They represent productive efficiency, where resources are fully employed.

What does a point inside the PPF represent?

An inefficient production combination because some resources are unused or misallocated.

What does a point outside the PPF represent?

A combination that is unattainable with current resources and technology.

What does an outward shift of the PPF represent?

Economic growth—the economy can produce more goods and services.

What happens when production moves along the PPF?

Producing more of one good requires giving up some of the other good.

What is opportunity cost?

The amount of one good that must be given up to produce more of another good.

What is the formula for opportunity cost?

Change in the output of one good ÷ change in the output of the other good

What is marginal cost?

The cost of producing one more unit of a good, measured in units of the other good.

Why is the PPF bowed outward?

Because resources are not equally well suited to producing both goods, causing increasing opportunity costs.

What is productive efficiency?

Producing at a point along the PPF, where resources are fully employed.

What is allocative efficiency?

When the production combination matches what consumers value and prefer.

When does allocative efficiency occur?

When the opportunity cost of producing one more unit equals the rate consumers are willing to trade one good for another.

What is marginal benefit?

The change in total benefit from consuming one more unit of a good.

How can marginal benefit be measured?

By the amount a person is willing to pay for one more unit of a good.

What is the principle of diminishing marginal benefit?

As consumption increases, the marginal benefit of each additional unit decreases.

Where does equilibrium occur in the PPF model?

Where marginal benefit equals marginal cost.

What is absolute advantage?

The ability to produce more of a product than another producer, without considering opportunity cost.

What is comparative advantage?

The ability to produce a product at a lower opportunity cost than another producer.

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Econ

Chapter 2

Question	Answer
What is the Production Possibilities Frontier (PPF)?	It shows the maximum possible combinations of two or more goods that an economy can produce with its available resources and technology.
What do points along the PPF represent?	They represent productive efficiency, where resources are fully employed.
What does a point inside the PPF represent?	An inefficient production combination because some resources are unused or misallocated.
What does a point outside the PPF represent?	A combination that is unattainable with current resources and technology.
What does an outward shift of the PPF represent?	Economic growth—the economy can produce more goods and services.
What happens when production moves along the PPF?	Producing more of one good requires giving up some of the other good.
What is opportunity cost?	The amount of one good that must be given up to produce more of another good.
What is the formula for opportunity cost?	Change in the output of one good ÷ change in the output of the other good
What is marginal cost?	The cost of producing one more unit of a good, measured in units of the other good.
Why is the PPF bowed outward?	Because resources are not equally well suited to producing both goods, causing increasing opportunity costs.
What is productive efficiency?	Producing at a point along the PPF, where resources are fully employed.
What is allocative efficiency?	When the production combination matches what consumers value and prefer.
When does allocative efficiency occur?	When the opportunity cost of producing one more unit equals the rate consumers are willing to trade one good for another.
What are preferences?	A person's likes and dislikes.
What is marginal benefit?	The change in total benefit from consuming one more unit of a good.
How can marginal benefit be measured?	By the amount a person is willing to pay for one more unit of a good.
What is the principle of diminishing marginal benefit?	As consumption increases, the marginal benefit of each additional unit decreases.
Where does equilibrium occur in the PPF model?	Where marginal benefit equals marginal cost.
What is absolute advantage?	The ability to produce more of a product than another producer, without considering opportunity cost.
What is comparative advantage?	The ability to produce a product at a lower opportunity cost than another producer.

Created by: user-2057773

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