What is a free lunch in economics?
A free lunch refers to a situation where there is no cost incurred by the individual receiving the goods or services being provided.
What does there is no such thing as free lunch mean in economics quizlet?
There is no free lunch in economics means that everything comes with a price. The price may not always be money. If you get something for free, there is a cost that has be paid somewhere in the wider economic system.
Why does scarcity exist?
Scarcity exists when there is not enough resources to satisfy human wants. One of the most widely known examples of resource scarcity impacting the United States is that of oil. As global oil prices increase, local gas prices inevitably rise.
What are three things a PPC shows?
A production possibilities curve shows efficiency, when the maximum amount of goods and services possible is being produced, underutilization, when fewer than the maximum amount is being produced, and the law of increasing opportunity costs in a visual way.
What does a PPC represent?
Definition. production possibilities curve (PPC) (also called a production possibilities frontier) a graphical model that represents all of the different combinations of two goods that can be produced; the PPC captures scarcity of resources and opportunity costs.
How does unemployment affect PPC?
PPC is said to be the curve that shows all the combinations of two goods that can be produced in an economy with the fuller utilisation of the given resources in the most efficient way. Thus, if there is unemployment or inefficient use of resources in an economy then the point on the PPC will shift below the PPC.
Why is PPC concave explain?
PPC is concave to the origin because of increasing Marginal opportunity cost. This is because inorder to increase the production of one good by 1 unit more and more units of the other good have to be sacriced since the resources are limited and are not equally efficient in the production of both the goods.
What is the shape of PPC?
Since resources are use specific, therefore every time when one more unit of a product X is produced more units of product Y are sacrificed that results in increasing marginal opportunity cost which leads to the concave shape of the PPC.
What does a convex PPC mean?
production possibility curve
Why is PPC downward sloping?
The downward sloping nature of the PPC is due to the law of increasing opportunity cost. According to this law, with the fuller utilisation of the given resources, in order to produce an additional unit of one good, some of the resources are to be withdrawn from the production of another good.
What is the slope of PPC What does it show?
Slope of PPC shows the ratio between the loss of output and gain of output. The slope of production possibility curve is the marginal opportunity cost which refers to the additional sacrifice that an economy makes when it shifts resources and technology from production of one commodity to the other.
What does a point below PPC indicate?
A point below PPC like F, depicts inefficiency or underutilisation of available resources. In other words, we can say that points that lie below the PPC such as point F are associated with underemployment of resources and inefficient utilisation of the available technology.
What is the slope of production possibility curve?
The slope of the PPF indicates the opportunity cost of producing one good versus the other good, and the opportunity cost can be compared to the opportunity costs of another producer to determine comparative advantage.
What is the slope of production function?
2. The upward slope of the production function means that any additional inputs of capital or labor produce more output. The fact that the slope declines as we move from left to right illustrates the idea of diminishing marginal productivity.
When can PPC be a straight line?
A PPC curve can be a straight line only if the marginal rate of transformation (MRT) is constant throughout the curve. A MRT can remain constant only if both the commodities are equally constant and the marginal utility derived from their production is also constant.
When the PPF is a straight line?
A straight line PPF: A straight line PPF where the opportunity cost is constant. The slope of the PPF shows the rate at which the production of one good can be transferred to another. The slope is called the marginal rate of transformation (MRT).
Is production possibility a curve?
The production possibilities curve (PPC) is a graph that shows all of the different combinations of output that can be produced given current resources and technology. Sometimes called the production possibilities frontier (PPF), the PPC illustrates scarcity and tradeoffs.
Can PPC be convex?
PPC is concave shaped because of increasing marginal rate of transformation. It implies that more and more units of commodity sacrificed to gain an additional unit of another commodity. PPC is convex shaped because of decreasing marginal rate of transformation.
What are the 4 assumptions of the PPC?
The four key assumptions underlying production possibilities analysis are: (1) resources are used to produce one or both of only two goods, (2) the quantities of the resources do not change, (3) technology and production techniques do not change, and (4) resources are used in a technically efficient way.
What is production possibility curve with diagram?
In other words, production possibility curve can be defined as a graph that represents different combinations of quantities of two goods that can be produced by an economy under the condition of limited available resources. …