A Level Microeconomics 2 - Ppcs And Specialisation.

Front 1

What is a Production Possibility Curve?

Back 1

An anylitical tool to show the concepts of scarcity, choice and opportunity cost.

Front 2

What does the PPC show?

Back 2

The maximum output of a combination of 2 goods or services that can be produced with current resources and technology.

Front 3

On this PPC, which points are feasible?

Back 3

Scarcity of economic resources limits output to points on (e.g. A) or below (e.g. D) the PPC. E represents an unattainable/infeasible combination of 2 goods since it is beyond the PPC.

Front 4

When an economy is producing on its PPC it is...

Back 4

Working at full capacity (productive potential) and fully utilising its economic resources.

Front 5

A point on the PPC is...

Back 5

Productively efficient.

Front 6

If the economy want to produce more education (i.e. y1 to y2), what is the opportunity cost?

Back 6

Less healthcare (X1 to X2).

Front 7

What are 3 assumptions made by PPCs?

Back 7

•Only 2 goods or services are produced.

•The amount of resources is fixed.

•Technology is fixed.

Front 8

What happens to most countries' PPCs over time? Why?

Back 8

Over time most countries' productive capacity increases (long run economic growth), as the quantity and 'quality' (productivity) of resources increases and technology improves. This shifts the PPC from PPC1 to PPC2

Front 9

What will an outward shift in the PPC mean for production.

Back 9

The production of consumer goods can increase without affecting the production of capital goods.

Front 10

If there is a change in the quantity of productivity of resources that are specific to the production of one type of product, what will happen to the PPC?

Back 10

The slope of the PPC will change.

Front 11

Most PPCs curve...

Back 11

Outwards.

Front 12

Why do PPCs curve outwards?

Back 12

As more of one product is produced, the opportunity cost of extra units of it increases. This is because some resources are better suited to making one type of good.

Front 13

Will the PPC ever be a straight, downwards line?

Back 13

Yes. When economic resources are equally good at producing both goods, the opportunity costs will be constant and so the PPC will be a straight, downward sloping line.

Front 14

What is specialisation?

Back 14

When an individual, firm or country focuses it's factor endowment on producing specific goods or services.

Front 15

What is a factor endowment?

Back 15

A stock of resources or factors of production.

Front 16

Which country should specialise in what at this simple model, what would the benefit be and what would be the opportunity cost be?

Back 16

Exeland should specialise in producing beer and Wyeland should specialise in producing pizza. The benefit would be an increase in global production of 50 beers and 500 pizzas.

Front 17

What does the gradient of a PPC represent?

Back 17

The opportunity cost of one good in terms of the other.

Front 18

What are the advantages of specialisation?

Back 18

Provided there is a system of trading goods and services (exchange) specialisation can:

Increase total output

Give consumers access to a wider range of goods and services.

Lead to economic growth since global output increases.

Front 19

What are the disadvantages of specialisation?

Back 19

Overdependency on a single product/market.

Vunerable to changes in demand and supply.

Unemployment (e.g. deindustrialization as countries/firms with lower costs are more competitive.

Political risk of inter-dependency e.g. a global economic crisis/political crisis may disrupt supplies of essential commodities.

Front 20

What is the role of money?

Back 20

Money allows specialisation and exchange to take place. It is a medium of exchange.

Front 21

What does a barter economy require?

Back 21

A double coincidence of wants.

Front 22

What is division of labour?

Back 22

When labour is specialised.