1.

The Basic Economic Problem

Production Possibility Curves - Part #2
 Lesson Objectives
● To be able to explain movements along a PPC

● To be able to explain shifts in a PPC in terms of causes and

consequences and of shifts in PPC and economic growth
Activity - Location of production points

Is the economy in the

photograph operating at
point X, Y or Z?
 Answers

Photograph shows people entering a job centre

which indicates that there is unemployment so
the economy is at point X in the diagram
It would be impossible for it to operate at point Z
as there are not enough resources in the
economy to product this level of output
But...could an economy try to reach point Z?
Moving the PPC
To move from Y to Z, the economy
would have to experience
economic growth.

It could produce more capital

goods (going from point Y to W) -
by producing more capital goods,
the economy is then able to
produce more consumer goods in
future - so can move to point Z
 What will move the PPC to the right?
● Additions to resources e.g. more labour from
immigration (and increasing amount of people
available to make capital goods)

● Training of labour - improvements to education

● Improvements in technology - such as more

efficient equipment (able to make more capital
goods)
 Activity 7
Copy the table below. In the first column, place
the following movements on the PPC against the
correct explanation
● Y to X
● Y to Z
● Z to Y
● X to Y

Movement on the PPC Explanations of the movement

Increases in unemployment

Increases in workers leaving the country to work abroad

Improvements in technology for factory machinery

Spare capacity in factories gets used up and now factories are working at full capacity
 Answers

Movement on the Explanations of the movement

PPC

Y to X Increases in unemployment

Z to Y Increases in workers leaving the country to work abroad

Y to Z Improvements in technology for factory machinery

X to Y Spare capacity in factories gets used up and now factories are working at full
capacity
 Why might there be fewer resources in an
economy?

● Destruction from war or natural disaster

● Labour migrates to other countries
 Activity

Using the newspaper headlines draw a PPC to show

what changes have occurred in each situation.

You should identify if it links to actual or potential

growth and why or does it cause a movement along
the curve as opportunity cost exists?
 Answers
● Oil reserves have been found off the coast of Ireland. Curve shifts out to
right as a new "Land" factor of production / resource has been found (Increase
in potential output)
● Spain's unemployment rate has risen by 5%. Point inside the ppc curve
(inefficient) moves left. There are resources (labour) but it is not being used -
this is inefficient
● Japan's minister of trade has announced that it will shut down 50 car
factories but it aims to open 10 new TV factories.
Curve could move point inward - less efficiency - as loss of factories but
workers, land and capital still available and production
OR it could be a move along the curve towards more production of another
good (same skill set) but less so - debatable?
 Answers
● Scientists in Korea have created a new synthetic material that can be
used as a substitute to plastic. No change as it acts as a substitute and
so the plastic in gone but replaced with another resource
● Dubai announces plans to build 'The Universe' – its third man made
island aimed at attracting tourism. Shift the PPC curve to right - increase
in potential output - possibly due to increase in enterprise as a factor of
production / reclaimed land?
● Relaxed immigration laws create a boom of immigrant labourers
working on new housing developments in Malaysia. Shift the PPC
curve to right - increase in potential output - this is because there are now
more resources (labour)
 Answers

● South Africa announces plans to introduce free college courses

for students to boost the skills in the population. Shift of the
curve to the right - increase in potential output - growth of skills
(increases quality of factors of production)

● Russia announces plans to build 5 new nuclear energy plants.

Shift of the curve to the right - increase in potential output - more
capital as a factor of production
 Practice IGCSE Question

Using a production possibility curve diagram,

explain how the curve can be used to show
the consequences of a change in the
allocation of resources between the
production of two goods. [6]
 Mark Scheme
Using a production possibility curve diagram, explain how the curve can be used to show
the consequences of a change in the allocation of resources between the production of two
goods. [6]

Diagram - 3 marks
● Correct labelling of two axes (1)
● Correct shape of curve (1)
● Movement from one position on the curve to another (1)

Explanation - 3 marks
Correct explanation that as more resources are allocated to the production of one good (1), less
resources can be allocated of the other good (1), as there will be an opportunity cost (1)

Only reward candidates who drew shifts if it is explained that if there are more resources, it is
possible to devote more resources to the production of one good without reducing the production of
the other