Chapter 2

Another PPF Recall the definition of the PPF, that it shows maximum combinations of goods that can be produced. It is possible to do less than the maximum (so that a nation can wind up producing within the PPF) but it is not possible to do more than the maximum. Hence, combinations of goods beyond the PPF, such as point d in the figure to the right, are not attainable. At least not at present. How can these points become attainable? The figure gives a clue: Economic growth can occur so that points currently beyond the PPF become attainable sometime in the future, say when we have everyday travel by rocket.

Growth in the nation's factors of productio - labour, capital, or land - and growth in the nation's technology increase the maximum combinations that can be produced. Shifting PPF Hence, as this growth occurs, the PPF shifts outward and previously unattainable combinations of output become attainable. The figure to the left shows growth in the PPF. As the nation grows, note that point d, previously unattainable, becomes attainable. Thus, economic growth increases the combinations of goods that the nation can produce.

Click on the figure below to see a summary of some of the important factors about the production possibilities frontier.

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