All Flashcards
What are the differences between productive and allocative efficiency?
Productive efficiency means producing at the lowest possible cost (any point on the PPC); allocative efficiency means producing the mix of goods society desires (the best point on the PPC).
What are the key differences between a movement along the PPC and a shift of the PPC?
A movement along the PPC represents a reallocation of resources between two goods, while a shift of the PPC represents a change in the economy's overall productive capacity.
What is the difference between constant and increasing opportunity cost, and how does each affect the shape of the PPC?
Constant opportunity cost means resources are equally adaptable (straight-line PPC); increasing opportunity cost means resources are not perfectly adaptable (bowed-out PPC).
Compare and contrast the causes of economic growth and economic contraction as they relate to the PPC.
Economic growth (outward shift) is caused by increased resources or technology; economic contraction (inward shift) is caused by decreased resources or technology.
What is the difference between producing at a point inside the PPC and producing at a point outside the PPC?
Producing inside the PPC means resources are underutilized; producing outside the PPC is unattainable with current resources and technology.
How does specialization relate to a country's PPC, compared to a country that produces everything itself?
Specialization allows countries to produce more efficiently and potentially consume beyond their own PPC through trade, while a country that produces everything itself is limited by its own PPC.
Differentiate between how a technological improvement in only one industry affects the PPC versus a technological improvement that affects all industries.
A technology improvement in one industry pivots the PPC outward along that industry's axis, while a technology improvement in all industries shifts the entire PPC outward.
Compare the effects of a natural disaster versus a government policy on a country's PPC.
A natural disaster typically causes an inward shift of the PPC due to resource destruction, while a government policy can have varying effects, potentially shifting the PPC inward or outward depending on the policy's goals and impacts.
What is the difference between opportunity cost and monetary cost?
Opportunity cost is the value of the next best alternative forgone; monetary cost is the explicit price paid for something.
Compare the impact of increased labor force participation versus increased capital investment on the PPC.
Increased labor force participation shifts the PPC outwards, especially along the labor-intensive good. Increased capital investment shifts the PPC outwards, especially along the capital-intensive good.
How would increased investment in education affect a country's PPC in the long run?
It would likely shift the PPC outward by improving the quality of human capital and increasing productivity.
How would a policy that restricts international trade (e.g., tariffs) affect a country's ability to consume beyond its PPC?
It would limit the country's ability to specialize and trade, preventing it from consuming beyond its own production possibilities.
What is the likely impact of a policy promoting technological innovation on the PPC?
The PPC would shift outward, reflecting the increased productive capacity resulting from new technologies.
How might a government policy focused on resource conservation affect future PPCs?
By preserving resources, the policy could help maintain or even expand future production possibilities, leading to a larger outward shift of the PPC over time.
What is the potential impact of a policy that leads to high inflation on a country's productive efficiency, as represented on the PPC?
High inflation can create uncertainty and distort resource allocation, potentially leading to production inside the PPC (inefficiency).
How would a policy that encourages immigration affect a country's PPC?
Increased immigration can increase the quantity of labor resources, potentially shifting the PPC outward.
How might a policy that subsidizes the production of renewable energy affect a country's PPC?
It could lead to a shift in the PPC, favoring the production of renewable energy and potentially shifting the curve outward along the renewable energy axis.
What is the likely effect of a policy that reduces investment in infrastructure (e.g., roads, bridges) on the PPC?
Reduced infrastructure investment can hinder productivity and resource mobility, potentially slowing the outward shift of the PPC or even causing it to shift inward over time.
How would a policy promoting free trade zones affect a country's PPC and consumption possibilities?
Free trade zones encourage specialization and trade, allowing the country to potentially consume beyond its PPC and experience economic growth.
How does a government policy that increases unemployment benefits affect the PPC?
Increase in unemployment benefits decreases the labor available. The PPC shifts inward.
On a PPC graph, what does a point inside the curve represent?
Underutilization of resources or inefficiency.
On a PPC graph, what does a point outside the curve represent?
An unattainable level of production given current resources and technology.
What does a movement along the PPC represent?
A reallocation of resources between the two goods, involving opportunity cost.
What does a shift of the entire PPC outward represent?
Economic growth, indicating an increase in the economy's productive capacity.
What does a bowed-out (concave) PPC shape indicate?
Increasing opportunity cost.
What does a straight-line PPC shape indicate?
Constant opportunity cost.
If the PPC shifts outward more along the X-axis (Good A) than the Y-axis (Good B), what does this imply?
There has been a technological improvement or increase in resources specific to the production of Good A.
How would you represent a recession on a PPC graph?
As a point inside the PPC, indicating underutilization of resources due to unemployment.
How does a technological advancement that benefits both goods appear on the PPC?
The entire PPC shifts outward, expanding the production possibilities for both goods.
How would you illustrate the impact of a devastating natural disaster on a country's PPC?
The entire PPC would shift inward, reflecting a decrease in available resources and productive capacity.