shifts in the production possibility frontier
The production possibility frontier will shift outwards when
- There are improvements in productivity and efficiency from the available factor resources
- There is an increase in productive potential following an improvement in technology. This may be specific to one industry or (more likely) the technological break-through may have advantages for many industries in an economy. The diffusion of new technology is sometimes called a "positive spill-over effect"
- More factor resources are exploited (perhaps due to an increase in the available workforce or a rise in the amount of capital equipment available for businesses to use). New natural materials (land) may also become available for the production process.
IMPROVED TECHNOLOGY IN THE COMPUTER INDUSTRY
An outward shift of the frontier shown in the (diagram above) implies that the opportunity cost of production has fallen. The improvement in technology is assumed to affect the notebook computer producers only.
AN INCREASE IN TOTAL FACTOR PRODUCTIVITY IN THE ECONOMY AS A WHOLE
If whole economy productivity improves the production possibility for all goods and services increases. This implies an expansion in the potential output for the economy and clearly has important implications for long-run living standards. If more output can be generated from the same resources, the economy is better able to meet the needs and wants of consumers. Real output per head should rise over time.
Productivity growth is vital in determining the long run average growth rate for most economies.
Despite the outward shift of the PPF, the basic problem of scarcity and associated trade-offs between different levels of output of two or more goods and services still remains.
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