A) The use of production possibility frontiers to depict:
The production possibility frontier helps economists analyse trade-offs. The maximum productive potential of an economy is shown on the line of the PPF Curve. This is the maximum amount of the two goods combined that they are able to make sustainably with their current factors of production. This is also the point at which pareto efficiency occurs which is the point at which it is impossible to reallocate resources without creating less/more of the other good. For example, if the economy was currently producing 160 capital goods and 135 consumer goods, but wanted to increase the amount of capital goods produced to 190 it cannot do so without reducing resource allocation towards consumer goods. In order to increase the capital goods produced the economy will have to reduce the amount of consumer goods that are produced to 90. In addition of this, there is also an opportunity cost of changes in resource allocation when the economy is operating paretoly efficient. For example, by choosing to make 100 capital goods it means that there is an opportunity cost of 20 consumer goods. Furthermore, if the amount of capital goods produced increase from 100 to 160 then it would result in a decrease in consumer goods from 180 to 135. Therefore the opportunity cost of increasing capital goods from 100 to 160 would be 45 consumer goods. The opportunity cost increases as more and more resources are used for consumer goods. This is due to the fact that the most suited factors of production will be used first to make consumer goods. Therefore, the opportunity cost will be low (5 capital goods) as few factors of production will be need to be shifted from making capital goods to consumer goods in order to increase the number of consumer goods being made by a large amount (from 0 to 45). However, the more consumer goods that are being made (e.g. 135 to 180) the less suited the factors of production being used to make consumer goods will be and therefore the larger the opportunity cost will be (60 capital goods). This is due to the fact that more factors of production will need to be shifted from making capital goods to consumer goods in order for the consumer goods being made to increase by the same amount.
Anything within the PPF curve is attainable due to the fact that it is within the productive potential of the economy. Although this is the case, an economy that is operating within the PPF curve would be inefficient. This is due to the fact that they’re not using all of the resources available to them. The productive potential of the economy/ the PPF line shows the maximum amount of two goods that can be made when all factors of production are being used. Therefore if the economy was operating inside the PPF curve it shows that not all factors of production are being used which is wasteful. This is also known as a negative output gap. In contrast to this, any point outside the PPF curve is unattainable with current factors of production. The only way for an economy to work at a point outside the current PPF curve is if they increase the quantity or quality of their factors of production. By doing this it will allow more goods to be produced. This also results in economic growth due to the quantity and quality of a country’s factors of production affecting the supply side of the economy and therefore economic growth. An increase in economic growth will result in the PPF curve shifting outwards. As shown from the diagram this will allow more capital and consumer goods to be produced. This is because the pareto efficient point shifts out with the PPF curve. For example, point B which was previously unattainable can now be operated at. The shift from point A to B sees consumer goods increase by 10 and capital goods increase by 15. In contrast to this, a decrease in economic growth can cause result in the PPF curve shifting inwards. This will cause the economy to no longer be able to work at point A. Instead the number of consumer and capital goods that can be made will reduce.
B) The distinction between movements along and shifts in production possibility curves, considering the possible causes for such changes:
Movements along the PPF curve illustrate a change in resource allocation. For example, factors of production may shift from making consumer goods to making capital goods. This can be shown on the diagram as the amount of capital goods being made increases from 100 to 160 whereas the amount of consumer goods decreases from 180 to 135.