The nature of basic economic problems can be better understood and distinguished from each other with the aid of an important tool of modern economics known as production possibility curve. Production possibility curve is also called the production possibility frontier. Production possibility curve frontier is a graphic representation of alternative production possibilities facing an economy. As the total productive resources of the economy are limited, the economy has to choose between different goods.
Whatsapp Updated August of to include more information and examples. Previous posts have gone over the description and construction of the production possibilities frontier, but have always assumed that the PPF stayed where it was or that everything else was held constant.
Keep in mind that some texts will call it the production possibilities curve PPC while this post calls it the production possibilities frontier. Both names describe the same concept. In the real world there are several events that can occur that would cause the PPF to shift, or cause changes in its shape.
The most common reason a PPF would shift is because of a change in technology, or because of economic growth. For example, if someone developed a faster computer, or a more efficient way of manufacturing cars, we might see a shift to the right in the PPF.
This means that everything else held constant ceteris paribus more goods can be produced after the technological change. The outward shift could also occur as a result of economic growth, which allows more production of both capital and consumer goods. The graph below shows this change: Increase in the PPF It is also possible for a natural disaster to hit which destroys some of the inputs in the production process.
Imagine if a hurricane took out a factory, then we would see lower production in the economy as a result. As long as the hurricane reduced the amount of inputs that the economy could use to produce outputs we would expect to see the PPF graph that looks like: Rightward shift in the PPF Point A shows a choice high in capital goods, which leads to large growth.
Finally, we could add some dynamics into the shifting process by allowing for a choice between capital goods, or consumption goods and analyze how much the PPF shifts out. For example, if we choose to produce at point A shown in the image to the rightthen we will have a relatively low amount of consumption goods pizza, clothes, parties, etc.
Point B shows a choice high in consumption goods, which leads to small growth. Some believe that the United States is at a point closer to B than A right now because of the small investment we are seeing in capital goods.
Most people in the United States have a very small savings rateand spend most of their money on food, entertainment, clothes, and other goods that need to be replaced every year.
This means that less money is being invested in capital goods which can then be used to produced more goods in the following year. Additionally, when more money is saved, banks can use that money to invest in larger businesses or houses, which would be around for a long time and would increase our PPF by more.
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Formed of huge gun positions with massive thick concrete walls. Define the factors that shift the PPC outward during WWII. 2. Describe how these factors pushed the PPC outward during WWII. (Remember the US was in the Great Depression at the beginning of the war, in addition The Hawley-Smoot Tariff Act of brought the U.S.
tariff to the highest protective level ever. Some of the factors that pushed the PPC %(4). An increase in the quantity of factors of production (land, labor, capital) will cause a right-shift of the PPC. So will improvements in productivity (using the factors we have better).
A good example is improved technology, which increases labor or capital productivity. Define the factors that shift the PPC outward during WWII. Describe how these factors pushed the PPC outward during WWII. (Remember the US was in the Great Depression at the beginning of the war, in addition The Hawley-Smoot Tariff Act of brought the U.S.
tariff to the highest protective level ever. (Click here for bottom) P p p, P Momentum. Utility of the concept of momentum, and the fact of its conservation (in toto for a closed system) were discovered by .