A Level Economics

A Level Economics:

Shift of the Production Possibilities Curve

Notes from the video ‘Diffusion Academy| A Level Economics |Shift of the Production Possibilities Curve‘:

 

In the previous video, An Introduction to the Production Possibilities Curvewe covered the basics of the production possibility curve.

 

In this short video, we would elaborate on what happens when there is a shift in the Production Possibilities Curve.

 

Let’s recap on the definition of production possibility curve:

 

The production possibility curve (PPC) shows all the possible combinations of two goods that can be produced in the economy when resources are fully and efficiently employed, given the state of technology, assuming the economy can only produce the two goods.

 

From this definition, we can see that the Production Possibilities Curve can be used to examine choices in the production of two goods.

 

 To make things clearer, we will illustrate this with the example we used previously.

 

Tom is a hardworking farmer who owns a small plot of land which can be used to plant oranges and apples.

A Level Economics Production Possibility Curve for Orange and Apples_Climate more suited to grow apples

We went ahead to create some choices Tom could have made on the number of oranges and apples to plant.

shift of the production possibilities curve

If we were to plot them on the graph, it would look something like this.

This is the production possibility curve for oranges and apples Tom can plant in a year.

The points along the curve reflects the choices Tom can make in producing the oranges and apples given the current state of technology and existing resources.

A shift of the PPC is reflection of a change in quantity or quality of productive resources or the state of technology.

 

Outward shift of the Production Possibilities Curve

A Level Economics Shift of the Production Possibilities Curve

If there is an increase in the quantity or quality of productive resources, or an improvement in the state of technology, the economy will be able to produce previously unattainable combinations of output. 

There would be an outward shift of the PPC, representing potential economic growth and increase in productive capacity

There may be a few reasons why the Production Possibilities Curve shifted right in Tom’s case:

Quantity of Resources: Tom may have gotten more seeds or a bigger plot of land.

Quality of Resources: Tom may have gotten soil that has more nutrients or is better suited to growing oranges and apples

Technology: Tom may have gotten more machines which makes it easier and faster for him to plant oranges and apples.

 

Inward shift of the Production Possibilities Curve

A Level Economics Production Possibility Curve

If there is an decrease in the quantity or quality of productive resources, or the state of technology has gone backwards, the economy will be able to produce less than previously attainable combinations of output.

There would be an inward shift of the PPC, representing lower potential economic growth and reduction in productive capacity.

 

There may be a few reasons why the Production Possibilities Curve shifted left in Tom’s case:

Quantity of Resources: Tom may have gotten less seeds or a smaller plot of land.

Quality of Resources: Tom may have gotten soil that has less nutrients or is less suited to growing oranges and apples.

Technology : Tom’s planting machines may have broken down and Tom has to plant and water the seeds manually.

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