Cambridge International as and a level Economics Ebook

Agricultural products
Manufactured products
700
0
660
100
600
200
500
300
300
400
0
500
Table 1.3 
Production possibility schedule 2
Figure 1.7 
A production possibility curve with increasing 
opportunity costs
Manufactured products
Agricultural pr
oducts
p
q
700
500
0
r
s
28
Cambridge International AS Level Economics

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So, the opportunity cost was initially small as 
resources better suited to the production of manufactured 
goods move from the production of agricultural goods. 
Alternatively, if more agricultural goods are produced, 
then it is necessary to reallocate those resources that are 
less suited to the production of manufactured goods.
A further case is where opportunity cost is constant. 
Th
e production possibility curve in this case is a straight 
line as shown in
 Figure 1.8
. Th
is indicates that every 
additional unit of agriculture that is produced requires the 
sacrifi ce of the same amount of manufactured goods.
Shift s in production possibility curves
A production possibility curve is drawn on the assumption 
that the quantity and quality of resources and the state of 
technology are fi xed. Th
rough time, of course, economies 
can gain or lose resources; the quality of resources and the 
state of technical knowledge can also change. Such changes 
will shift the production possibility curve to a new position. 
Figure 1.9
 shows the outcomes of changes in the quantity 
and quality of resources and changes in technology.
Figure 1.9a 
shows a situation in which the production 
possibilities available to an economy have expanded. Th
is 
is known as 
economic growth
. Th
is could be due to an 
increase in the quantity and/or the quality of resources 
available to the economy or an advance in the state of 
technology. Here the changes have improved the economy’s 
ability to produce both agricultural and manufactured 
products. In 
Figure 1.9b
, however, only the ability to produce 
agricultural products has been improved. Th
is could perhaps 
be because there has been a technological breakthrough in 
producing agricultural products, which does not apply to 
the production of manufactured products. Nevertheless, this 
economy’s production possibilities have improved and the 
curve has shift ed outwards from the origin.