Lesson 5B: Production Possibilities Curve(Part 2)

Unemployment/Underemployment

Occurs when the economy is producing at less than full employment or inside the curve

In a growing economy..

PPC shifts outward

Two main contributors to economic growth

1. Increases or improvements in Resources

2. Advances in Technology (or Know-how)

Increases or Improvements in Resources

1. Increase in land, capital, or labor resources

2. Investment in human capital

3. Increase in labor productivity

Advances in Technology (or Know-How)

Allows society to produce more goods with available resources (helps with increasing labor productivity)

Main reason for why economic growth is all countries’ goal

Population growth requires economic growth (economic growth → increased population growth and standard of living)

Factor that would cause PPC to shift inward

A decrease in the productive capacity of the economy commonly caused by natural disasters, pandemic, war/terrorism/ cyber attack, recession, labor migration, resource depreciation (decreased usefulness)

Recession

Depletes capital investment (no business to make resources)

Unemployment and strike..

Would NOT cause the curve to shift inward (resources are there just aren’t utilized)

Effects of Present Choices on Future Possibilities

An economy’s present choice if positions on its PPC is a basic determinant of the future location of the curve

An economy has a choice between 2 types of goods

1. Goods for the future

2. Goods for the present

Goods for the future

Capital goods, research and education, preventative medicine (ingredients for economic growth)

Goods for the Present

Consumer goods (ex. Pizza, soft drinks, clothing, bicycles,etc.)

Optimal choice b/w goods for the future and goods for the present

Presumably the better choice is investing more in goods for the future (leads to more economic growth than investing more in goods for the present)

During a time with high unemployment, a country can increase the production of one good or service…

Without decreasing the production of something else

Moving along the PPF itself..

Illustrates the existence of tradeoffs

Factors that limit amount of production

Not enough resources (scarcity) and/or technology

Relationship between unemployment and a free lunch

There’s a “free lunch” when there are available resources to use to gain production of one good WITHOUT giving up any production of the other good

Relationship between full employment of all Factors of Production and a tradeoff

Whenever there’s fill employment of resources, the economy must tradeoff the production of one good to gain more of the other good