Let’s consider a simple example of an
individual with fixed amount of land
on which she produces maize and
beans. Given the available land,
production techniques say hoe, type of
seeds used and labor.
The maximum combinations of maize and
beans that she can produce is given by points
along the PPF. At the prevailing conditions, the
individual can never produce beyond the PPF,
However, can move to a point outside the PPF
say point U if and only if any of the following or
a combination of the following takes place.
• She reclaims some land if she happens to live next
to a forest or swamp, so as to increase on the size
of her land holdings. This is similar to discovery
of new resources. A relative or friend donates her
more land. She uses fertilizers or better farming
techniques such as tractors, pesticides
hybrid seeds etc. this is similar to
adopting new production techniques.
Finally, a movement from a point inside
e.g. X towards a point on the PPC or from
a point on the PPC to a point outside the
PPC shows economic growth.
SHIFTS IN PRODUCTION POSSIBILITY
FRONTIER.
A movement from a point on the PPC to a
point outside the PPC shows economic growth.
This therefore, involves a shift in the PPC
outwards to the right
Agricultural Products
0 60 80
Manufactured
Products
When the PPC shifts outwards, it means that the
economy will be able to produce more goods and
services. Some of the factors that will result in the
production possibility frontiers shifting outwards are:
• An increase in the labor force.
• An increase in the stock of capital.
• An increase in technical knowledge.
• Improvement in training.
The Production Possibility Curve can also
shift inwards to the left if an economy’s
production potential declines.
Agricultural Products
6
0
40 60
Manufactured
Products
When the PPC shifts inwards it means that an
economy will be able to produce less agricultural
products and less manufactured products. This
could be due to a war or a natural disaster which
reduces a countries resources. When the PPC shifts
parallel to the origin implying that the innovation or
discovery of the new resources equally encourages
the production of both commodities it is called
unbiased shift
In the case of the biased shift the PPC is not
parallel to the origin as shown below.
Agricultural Products
0 60
Manufactured
Products
If there is a change in the quality or quantity of
resources which are specific to the production of
one type of goods, the slope of the curve will
change, e.g. an invention may improve production
techniques in agriculture. This will increase the
potential output of agriculture products and cause
the production possibility curve to tilt outwards as
shown in the diagram above.
THE SHAPE OF THE PRODUCTION POSSIBILITY CURVE
Agricultural Products
Concave
Manufactured
Products
The Production Possibility Curve is concave to
the origin. This means that they are bowed
outwards. This shows that as more of one good
is produced, the opportunity cost rises. This
means that for a firm or an economy, to
increase the production of one commodity, it
has to forgon the production of some units of
another product.
Production Possibility Curve, Scarcity, Choice And
Opportunity Cost.
Due to scarcity of resources, there must be a limit on the
output level that an economy can produce. The
negativity of the PPF signifies that because resources
are scarce to increase the output of one commodity, say
manufactured products than agricultural products, then
you need to reduce the output of agricultural products.
If the society wants more manufactured
products than agricultural products, then the
economy should produce at point B. If on the
other hand the society wants more agricultural
product than manufactured products, then it
should produce at point A and so forth. Choice
is therefore, determined by social cost welfare of
the society, and the type of the economic system.
Now if the society chooses to produce at either A or
B on the PPC, it produces more of one commodity
than another, if it chooses to produce at point B
instead of A, it means that society will consume at
point B. This implies that society is sacrificing
agricultural products for more manufactured
products. So the opportunity cost of producing
more manufactured products is the agricultural
products foregone.
REVIEW QUESTIONS:
STRUCTURED QUESTIONS
(1)
(a) Define Economics
(b) Distinguish between:
(i) Microeconomics and Macroeconomics.
(ii) Positive Economic and Normative Economics.
2) Clearly state the fundamental questions that
economics addresses.
(3) Distinguish between scarcity, choice and
opportunity cost.
(4) What is a production possibility frontier (PPF)?
(5) What factors may lead to a shift in a PPF?
(6) Explain the relationship between a
PPF, scarcity, choice and opportunity cost
