1.1.4 Production Possibility Frontiers
Production Possibility Frontiers
The PPF shows the maximum output combinations an economy can achieve when all resources are fully and efficiently employed.
Factor Mobility refers to the ability to move factors of production out of one production into another.
Opportunity cost increases because not all our factor inputs can produce both goods equally a well. Most economies have some degree of specialisation, some of their factor inputs are more suited to a particular industry so factor immobility exists. If resources are moved to another industry then they are done so at an increasing opportunity cost.
A PPF will shift outwards if there is an increase in the quality or quantity of resources. PPFs can also shift inwards if there are wars, natural disasters or epidemics.
Consumer goods- goods that are ultimately consumed rather than used in production of another good
Capital goods- Used in production of other goods, rather than being bought by consumers
Specialisation- when all resources are concentrated on one area of production
If the government were to spend on trading, the quality of resources would increase causing an outward shift in the PPF. The government could also subsidise companies to spend on efficiency, or they could lower corporation tax.
Subsidy- government grant
Effects on a PPF:
Increase in immigration = outward shift
War in the UK = inward shift
Increased spending on education and training = outward shift
Improvement in technology for one type of good = shift on one side of the PPF
Factor immobility of labour: If workers aren't mobile they run the risk of being unemployed if there are changes in an industry
Geographical immobility can be caused by:
Occupational immobility can be caused by:
The government can help by
Geographical immobility - the ease at which labour can move between different areas of work
Increases in levels of education and training can increase occupational mobility
The PPF shows the maximum output combinations an economy can achieve when all resources are fully and efficiently employed.
Factor Mobility refers to the ability to move factors of production out of one production into another.
Opportunity cost increases because not all our factor inputs can produce both goods equally a well. Most economies have some degree of specialisation, some of their factor inputs are more suited to a particular industry so factor immobility exists. If resources are moved to another industry then they are done so at an increasing opportunity cost.
A PPF will shift outwards if there is an increase in the quality or quantity of resources. PPFs can also shift inwards if there are wars, natural disasters or epidemics.
 |
| This shows constant opportunity cost |
Economic growth- an increase in the real or potential output, this is shown by an outward shift in the PPF.
Factor Immobility- occurs when it is difficult for factors of production to move between different areas of the economyConsumer goods- goods that are ultimately consumed rather than used in production of another good
Capital goods- Used in production of other goods, rather than being bought by consumers
Specialisation- when all resources are concentrated on one area of production
If the government were to spend on trading, the quality of resources would increase causing an outward shift in the PPF. The government could also subsidise companies to spend on efficiency, or they could lower corporation tax.
Subsidy- government grant
Effects on a PPF:
Increase in immigration = outward shift
War in the UK = inward shift
Increased spending on education and training = outward shift
Improvement in technology for one type of good = shift on one side of the PPF
Factor immobility of labour: If workers aren't mobile they run the risk of being unemployed if there are changes in an industry
Geographical immobility can be caused by:
- low levels of infrastructure
- family and social ties
- financial costs of housing and moving
- regional differences in house prices
- cultural and language barriers
- migration controls
Occupational immobility can be caused by:
- lack of skills/non-transferrable skills
- some use of capital can be specific to an industry
The government can help by
- lowering visa requirements
- subsidising building companies
- spending money on infrastructure
Geographical immobility - the ease at which labour can move between different areas of work
Increases in levels of education and training can increase occupational mobility