2.4 Economic Growth

Shifting a PPF

An increase in the physical quantity or the quality of factors of production available to an economy or a technological gain will allow the economy to produce more goods and services; it will shift the economy’s production possibilities curve outward. The process through which an economy achieves an outward shift in its production possibilities curve is called economic growth. An outward shift in a production possibilities curve is illustrated in Fig 2.4. In Panel (a), a point such as N is not attainable; it lies outside the production possibilities curve. Growth shifts the curve outward, as in Panel (b), making previously unattainable production levels possible. Economic Growth allows countries, individuals, or firms to reach points outside their PPF. Factors that allow shifts in countries’ PPF, resulting in a change in attainable output, include:

• A Shift in Technology. If you were to invent a computer system that showed the location of crabs and pineapples on the island, you would be able to produce more of both goods, shifting the PPF outward.
• More Physical capital, Education or Training. If you were to become more skilled at harvesting pineapples or crabs and obtain more equipment, your attainable output would increase, shifting the PPF outward.