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Economics Unit 1.1 - Coggle Diagram
Economics Unit 1.1
PPF
A PPF is the maximum combination of goods/services that an economy is currently capable of producing.
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Efficiency
If an economy is on it's PPF, it is productively efficient.
If an economy is at the right point on a PPF that maximises utility, it is allocatively efficient
If an economy is both productively and allocatively efficient, it has pareto efficiency.
Points on PPF
If the point lies on the PPF, it is producing its maximum possible output and all resources are employed. Moving to any other point on the PPF would incur an opportunity cost
If the point is within the PPF, some resources are unemployed. This means that production of both things could increase with no opportunity cost.
If the point is beyond the PPF, it is unattainable and cannot be sustained for extended periods of time by the economy.
Movement of PPF
If the PPF shifts outwards (right), this is called economic growth, It is caused by an increase in either the quality or quantity of the factors of production.
If a PPF shifts inwards (left) this is called negative economic growth. This is a result in a decrease in the quality or quantity of the factors of production.
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The economic problem
Humans have unlimited wants, but only limited resources with which to fulfil these wants. This results in resource scarcity, which meant that choices have to be made, which results in a sacrifice, which we call oppotunity cost.
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Economic Systems
Free market
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Disadvantages
Inequality (caused by some people not being able to pay, so their needs aren't catered for)
May not lead to socially optimal outcomes (environmental damage, exploitation of workers etc)
Command economy
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Economic questions
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For whom to produce for
Equal distribution, based on need rather than ability to pay
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