![]() You could spend your time cleaning your apartment, or you could study. is the collection of “feasible outputs” of an individual, group or society, or country. What can we produce, and how does that relate to cost?įormally, the set of production possibilities The collection of feasible outputs of an individual, group or society, or country.The productive potential of the economy has increased (economic growth) and there has been a qualitative improvement in the composition of the nation's output (economic development). The PPC has shifted outwards denoting economic growth, but proportionately more of the economy's resources are now devoted to the output of health care rather than luxury goods as compared with the original position (PPC1). This is one indicator of economic development, providing sufficient people have access to the greater health care.įigure 7 shows economic growth and development occurring together. The switch from PPC1 to 2 shows more of society's resources being used for the production of health care and less for the production of luxury goods. Figure 6 below indicates economic development. The two previous diagrams (Figures 4 and 5) indicate an increase in economic growth through an increase in potential and actual output. This difference can be illustrated using a PPC. While economic growth is measured by the increase in a country's real level of output over time, economic development might additionally involve changes in the composition of output, a more equal distribution of income, greater access to health care etc. Difference between growth and developmentĪs noted in Section 1.3, economic development is a broader concept than economic growth. This denotes an increase in the productive capacity or potential of the economy as more of both goods can now be produced. This is illustrated in figure 5 below by an outward shift of the PPC. The productive potential of an economy may be increased by an increase in the quality and/or quantity of resources and, when this occurs, this is known as potential growth. The movement from point Z towards the PPC represents an increase in actual growth. This is illustrated in figure 4 below by a movement from a point within the PPC to a point towards or on the PPC. If an economy is operating inside its PPC and produces more as a result of using previously unemployed resources, or using resources more efficiently, this is referred to as actual growth. Actual growth and potential growth Actual growth So, in figure 3 the solid curve is the PPC with full employment, while the dotted line is the PPC with unemployment. ![]() The economy may be producing at some point inside the curve (producing less of both goods). The economy inside the PPCįigure 3 Unemployment=Inefficient resource use The opportunity cost of WW1 additional welfare services is AA1 armaments foregone. Armaments production falls from OA to OA1 and welfare services production increases from OW to OW1. If we move from point X to point Y we are reallocating resources out of armaments production and into welfare services production. We can see this opportunity cost in figure 2. The downward slope of the line or curve indicates that there is an opportunity cost in producing more of one type of commodity. Join up these points and the resulting line is called the production possibility curve. ![]()
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