![]() More Physical capital, Education or Training.If you were to invent a computer system that showed the location of crabs and pineapples on the island, you would be able to produce more of both goods, shifting the PPF outward. Economic Growth allows countries, individuals, or firms to reach points outside their PPF. Factors that allow shifts in countries’ PPF, resulting in a change in attainable output include: Growth shifts the curve outward, as in Panel (b), making previously unattainable levels of production possible. In Panel (a), a point such as N is not attainable it lies outside the production possibilities curve. An outward shift in a production possibilities curve is illustrated in Fig 2.4. The process through which an economy achieves an outward shift in its production possibilities curve is called economic growth. Ryder decided to produce 1 more snowboard per month.An increase in the physical quantity or in the quality of factors of production available to an economy or a technological gain will allow the economy to produce more goods and services it will shift the economy’s production possibilities curve outward. Suppose Plant 1 is producing 100 pairs of skis and 50 snowboards per month at point B. To see this relationship more clearly, examine Figure 2.3. These are also illustrated with a production possibilities curve. (Many students are helped when told to read this result as “−2 pairs of skis per snowboard.”) We get the same value between points B and C, and between points A and C.įigure 2.2 A Production Possibilities Curve The table shows the combinations of pairs of skis and snowboards that Plant 1 is capable of producing each month. Between points A and B, for example, the slope equals −2 pairs of skis/snowboard (equals −100 pairs of skis/50 snowboards). Because the production possibilities curve for Plant 1 is linear, we can compute the slope between any two points on the curve and get the same result. The slope of Plant 1’s production possibilities curve measures the rate at which Alpine Sports must give up ski production to produce additional snowboards. Producing more skis requires shifting resources out of snowboard production and thus producing fewer snowboards. ![]() ![]() Producing more snowboards requires shifting resources out of ski production and thus producing fewer skis. The negative slope of the production possibilities curve reflects the scarcity of the plant’s capital and labor. Here, we have placed the number of pairs of skis produced per month on the vertical axis and the number of snowboards produced per month on the horizontal axis. Neither skis nor snowboards is an independent or a dependent variable in the production possibilities model we can assign either one to the vertical or to the horizontal axis. The curve is a downward-sloping straight line, indicating that there is a linear, negative relationship between the production of the two goods. These values are plotted in a production possibilities curve for Plant 1. Combination A involves devoting the plant entirely to ski production combination C means shifting all of the plant’s resources to snowboard production combination B involves the production of both goods. The table in Figure 2.2 gives three combinations of skis and snowboards that Plant 1 can produce each month. It can produce skis and snowboards simultaneously as well. When devoted solely to snowboards, it produces 100 snowboards per month. Suppose the first plant, Plant 1, can produce 200 pairs of skis per month when it produces only skis. ![]() We assume that the factors of production and technology available to each of the plants operated by Alpine Sports are unchanged. Ryder’s three plants as a miniature economy and analyze them using the production possibilities model. ![]() While even smaller than the second plant, the third was primarily designed for snowboard production but could also produce skis. Two years later she added a third plant in another town. She also modified the first plant so that it could produce both snowboards and skis. The second plant, while smaller than the first, was designed to produce snowboards as well as skis. She added a second plant in a nearby town. Ski sales grew, and she also saw demand for snowboards rising-particularly after snowboard competition events were included in the 2002 Winter Olympics in Salt Lake City. Christie Ryder began the business 15 years ago with a single ski production facility near Killington ski resort in central Vermont. To construct a production possibilities curve, we will begin with the case of a hypothetical firm, Alpine Sports, Inc., a specialized sports equipment manufacturer. \)Ĭonstructing a Production Possibilities Curve ![]()
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