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Chapter 2: Problem 2

What is a production possibilities frontier? How can we show efficiency on a production possibilities frontier? How can we show inefficiency? What causes a production possibilities frontier to shift outward?

Short Answer

Expert verified
The Production Possibilities Frontier (PPF) is a model showing the trade-off between the production of two goods. Efficiency is shown by points on the PPF curve, while inefficiency is indicated by points inside the curve. An outward shift of the PPF reflects economic growth, which can be caused by factors such as increased workforce, improved technology, or increased capital.

Step by step solution

01

Introduction to Production Possibilities Frontier

The Production Possibilities Frontier (PPF) is a model in economics that illustrates the trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for each possible quantity of the other good. The PPF is typically depicted as outward-bending, reflecting the principle of increasing opportunity cost.
02

Showing Efficiency on PPF

A point is considered efficient on the PPF when resources are utilized in a way that maximizes the production of both goods. This means there is no way to produce more of one good without reducing the production of the other good. On a diagram, points on the PPF curve represent efficient levels of production.
03

Showing Inefficiency on PPF

Inefficiency on the PPF is indicated by points inside the curve. This means the economy could produce more of at least one good without reducing the production of the other good, suggesting resources are not being fully utilized.
04

Causes of Outward Shift of PPF

An outward shift of the PPF represents economic growth. This can be caused by various factors, such as an increase in a nation's labor force, an improvement in technology, or an increase in capital (e.g., tools, machinery).

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Most popular questions from this chapter

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