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Questions and Answers
What does a PPF (Production Possibility Frontier) show?
The maximum possible output combinations of two goods given a fixed level of resources.
Movements along the PPF represent changes in the total amount of resources available to the economy.
False
What happens to the PPF when there is an increase in resources?
The PPF shifts outward.
What can cause the PPF to shift inward?
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How can technology affect the PPF?
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Match the following scenarios with their effect on the PPF:
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What is indicated by an outward shift of the PPF?
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Improved technology only benefits the production of one type of good.
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Study Notes
Production Possibility Frontier (PPF)
- A PPF illustrates the maximum output combinations of two goods achievable with fixed resources.
- Shifting along the PPF indicates reallocation of resources between the two goods.
- Outward shifts of the PPF represent economic growth, signifying increased potential output.
Economic Growth & PPF Shifts
- Increased resources: More workers, for example, shift the PPF outward, allowing for greater production of both goods.
- Decreased resources: A natural disaster, for instance, would shift the PPF inward, decreasing potential output.
- Technological advancements or labor training: Improved technology or better training can shift the PPF outward. This indicates that the economy can produce more output with the same level of resources.
- Example: Technology advancements can lead to specific outputs increasing while others remain unchanged. For example, improved house-building technology could expand the PPF only in the horizontal direction, allowing more houses to be built while vehicle output remains the same.
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Description
This quiz focuses on the Production Possibility Frontier (PPF) and its significance in illustrating economic growth. It covers the effects of resource allocation, technological advancement, and disaster impacts on potential output. Assess your understanding of these concepts and their practical implications.
