![]() ![]() The cookie is used to store the user consent for the cookies in the category "Performance". This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other. The cookies is used to store the user consent for the cookies in the category "Necessary". The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional". The cookie is used to store the user consent for the cookies in the category "Analytics". These cookies ensure basic functionalities and security features of the website, anonymously. Necessary cookies are absolutely essential for the website to function properly. ![]() ![]() In addition to the above, we can depict any number of different pairs of goods or services on the production possibility curves, such as public vs private goods, agricultural vs. On the other hand, Figure 9 shows lesser outward shift of the present curve PP from point В to the future curve P 1P 1 when less capital goods are produced in the future. This is because consumer goods satisfy the present wants while capital goods satisfy future wants.įigure 8 shows that the outward shift of the economy’s future production possibility curve P 1P 1 from point A of the present curve PP is greater when more capital goods are produced in the future. It will thus experience higher economic growth. Future Goods:Īn economy that allocates more resources in the present to the production of capital goods than to consumer goods will have more of both kinds of goods in the future. Why point С? Because when there is economic growth, the economy will have larger quantities of both consumer and capital goods than before. If the economy is stagnant at, say point S, economic growth will shift it to point A on the production possibility curve PP, and a further increase in the resources may shift the production possibility curve towards the right to P 1P. The supplies of resources like land, labour, capital and entrepreneurial ability are fixed only in the short run.ĭevelopment being a continuous and long run process, these resources change over time and shift the production possibility curve outwards as shown in Fig. Economic Growth:īy relaxing the assumptions of the fixed supply of resources and of short period, the production possibility curve helps us in explaining how an economy grows. 6 shows a greater increase in consumer goods than in capital goods, AB > CD. Figure 5 shows that technical progress brings about a greater increase in capital goods than in consumer goods CD > AB, while Figure. At the same time, it releases resources which can be employed to raise the output of capital goods. Increased productivity in consumer goods industry makes it possible to increase the output of this industry. It may be noted that even though technical progress is limited to one product, it enables the economy to have more of both goods. If technical progress takes place in the production of only one of the two goods, say consumer goods, the new production possibility curve will be PP 1 in Figure 4. It will lead to the production of more quantities of both consumer and capital goods, as shown by the movement from point A on PP 0 curve to point С on P 1P 1 curve. Given the supplies of factors, if the productive efficiency of the economy improves by technological progress, its production possibility curve will throughout shift outwards to P 1 P 1. Suppose the economy is producing certain quantities of consumer goods and capital goods as represented by the production possibility curve PP 0 in Figure 4. By relaxing the assumption of given and constant production with the help of the production possibility curve the increase in the production of both the goods than before. Technical progress enables an economy to get more output from the same quantities of resources. At the level of full- employment the economy can have more of capital goods at point B, or more of consumer goods at point C, or more of both the goods at point D. The economy can attain the full employment level by utilizing its resources fully and efficiently. It implies either idle resources or inefficient use of resources within the economy. Such a situation is depicted in Figure 3 where the curve PP depicts substantial unemployment in the economy. If we were to relax the assumption of full employment of resources, we can know the level of unemployment of resources in the economy. The following points highlight the six main uses of the production possibility curve. ![]()
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