Macroeconomics
● Points on the curve (e.g., points AandB):Aspreviouslyexplained,pointsonthePPCindicate that the economy is using all of its existing resources effciently to produce the goods. No resourcesaregoingunused,whichissomethingreferredtoas “fullresourceemployment.” In this case, the economy achieves productive effciency , which is a situation in which a given combinationofoutputisproducedatthe leastcost .However,movingfromonepointtoanother on the PPC still incurs an opportunity cost as discussed in the previous concept. ● Points inside the PPC (e.g, pointC):Theseindicatethe unemploymentorunderutilizationof resources and productiveineffciency .Thisisduetothefactthatsomeresourcesarenotfully employed or are not being used effciently. An economyproducingatpointCisnotproducing airplanes and yachts at their maximum potential given the existing resources. Itcanproduce more of both goods by moving to anypointonthecurve(e.g.,pointsAorB).Suchmovement doesnotincuranopportunitycostbecauseitinvolvesutilizingexistingidleresourcesinsteadof reallocating resources from the production of one good to another. ● Points outside thePPC(e.g.,pointD):Pointslyingoutsidethecurverepresent anunattainable productionorimpossiblecombinationofgoods giventheeconomy’scurrentresourcesand/or technology. Such points represent a position of scarcity sincetheeconomydoesnothavethe resources required to achieve this level of output of airplanes and yachts. Shifts of the PPC Sometimes, certain conditions and changes make points that lie outside the PPClineattainable.This causes the PPC either to pivot from its original position on one of the axes or to shift in its entirety.
A PPC shifts or pivots when:
● More resources become available: This occurs when new resources are discovered, when capital stock increases, or when the quality of the resources used improves. For example, the discoveryofnewfossilfuelreserves or renewable energy sources ortheuse of new machinery allow for an increase in production. Additionally, an increase in labor quality or productivity (the output produced perworker),raisesthe level of production.
● Thereisatechnologicalchangeorimprovement:Positiveandnegativechangesinaneconomy’s technologicallevelaffectthepositionofitsPPC.Technologicalbreakthroughsinproductionfor example allow an economy to produce more of both goods. When one of these factors affects the production of one ofthegoodsonthePPC,thecurvepivotsto show an increase or decrease in the production of that good only.
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