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PRODUCTIVITY POSSIBILITY CURVE
9708 / 22/ May / June 2010
2 (a) Explain how a country’s production possibility curve depends upon its factors of
production
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This economic model is constructed based on a few assumptions:
only 2 output is produced, resources are limited, the economy is a closed economy, factors of
production are not equally productive, and the state of technology is constant
...

Capital is a factor of production related to human made aids to production
...
It usually refers to investment in terms of fixed capital formation
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Hence, the productivity will increase, thus
shifting PPC outward as shown in Diagram 1
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Labour is a factor of production which concern the workforce of an economy in terms of both the
physical and mental effort involved in production
...
Quantity of labour increase might be caused by an increase of population or
immigration, while the quality of labour can be increased through education and training
...
In short, the
increase in quantity and quality of labour will both shift PPC outward
...
[8]
Probability possibility curve (PPC) is defined as a curve that joins different combinations of output
that can be produced in an economy over a particular period of time given the existing resources
and level of technology available
...

PPC can be used to explain two economic ideas, which is scarcity and opportunity cost
...
As
shown in Diagram 2, the output combinations on the PPC indicate that the max capacity has been
reached
...
In this
situation, the consumers cannot have more of both goods in the short run
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Choice is defined as the need to make decisions about the possible alternative uses of
the scarce resources
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Opportunity cost is the cost of something in relation to the forgone opportunity
...
PPC are usually drawn as a curve
rather than a straight line, this means that the opportunity cost will successively increase when extra
resources are transferred from one product to another product
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Diagram 2 has illustrated the idea of increasing opportunity cost, the opportunity cost of increasing
10 units capital goods is 5 units of consumer goods when point A shifts to point B
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Diagram 2

2(b) Discuss whether the combination of improved technology and globalisation will result in
solving the basic economic problem
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There are 3 basic economic problem to decide the allocation of
resources: What to produce, how to produce, for whom to produce
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It can help to increase productivity, which means the amount of production in a period
of time will be greater compared to previous period of time to satisfy the unlimited needs and wants
of people
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For example, the new technology to produce flip-flops from algae
has significantly reduced the usage of one of the most scarce resources in the world, plastic which is
made from petroleum
...

Globalisation is defined as the expansion of world trade in goods and services, together with capital
flows, leading to greater international interdependence
...

When a country has an absolute advantage in certain products, they are able to produce more
output with the same amounts of resources compared to other countries
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These knowledges can help to reduce wastage of resources, thus increasing the economic efficiency
in terms of allocation of resources
...
Moreover, globalisation encourages export and import activities, so the
countries can import the goods and services they do not specialise in while exporting the goods and
services they have advantages in
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However, the combination of these two approaches is not enough to result in solving the basic
economic problem
...

With that said, the price mechanism plays an important role in making decisions for the economic
problems
...


9708 / 22/ May / June 2012
2 (b) Discuss whether an economy’s production possibility curve is more likely to move
inward or outward over time
...
This economic model is constructed based on a few assumptions:
only 2 output is produced, resources are limited, the economy is a closed economy, factors of
production are not equally productive, and the state of technology is constant
...
Globalisation, government policy and improvement of human capital could make
this happen
...
In a free trade, where trade barriers such as
quotas and tariffs are eliminated, the knowledge of comparative advantage will be applied for
specialisation
...
The decision of what to specialise in is based on the factor endowment of the country
...
For the products that
the country is not specialising in, they would choose to import from the countries specialising in it
...
The fact that the products are produced at the lowest opportunity cost will increase total
output in an economy
...

In a mixed economy, the government policies also play vital roles in the economy
...
The fact that as the
young people join the labour market and the old labour still remain in the labour market will
increase the quantity of labour supplied
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Quality of human capital is also crucial for PPC to shift outward
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This is because they are able
to make use of new technology which should increase productivity
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In the other hand, Diagram 4 shows an inward shift of PPC, it indicates a fall in the overall
productivity in production
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One of them is the
depletion of resources
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If this happens without having a suitable replacement of alternative resources, the production
will corrupt, which will decrease the overall output of the economy
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Based on the analysis above, it is more likely that PPC would shift outward overtime
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For example, the use of algae to produce flip-flops instead
of plastic (made from petroleum)
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To achieve profit maximization as a producer, price
mechanism is used which encourage optimum utilization of resources, improving the economic
efficiency
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Diagram 4

9708 / 22/ Oct / Nov 2017
3 (a) Show the difference between a movement along, and a shift in, a production possibility
curve
...
Use diagrams to support your answer
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This economic model is
based on a few assumptions: only 2 products are produced, it is a closed economy, resources are
limited, fixed technology level, fop is not equally productive and full employment
...
Scarcity is the condition in which limited resources are not
enough to satisfy unlimited needs and wants of people
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When choice is made, opportunity cost exists
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PPC is drawn as a curve because not all inputs are equally
productive to all the production
...
Hence, the more input will be used to
produce capital goods, this movement is shown in Diagram 5 where output combination is changed
from point A to point B
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It will shift inward if the level
of production decreases, it might be caused by natural disasters such as flood causing the disruption
of production as the firms are not able to operate properly
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9708 / 21/ Oct / Nov 2018
2 (b) Discuss whether enterprise is crucial to the outward shift of the production possibility
curve in a mixed economy
...
This economic model is
based on a few assumptions: only 2 products are produced, it is a closed economy, resources are
limited, fixed technology level, fop is not equally productive and full employment
...

Enterprise is the factor of production that takes risk in organising the other 3 factors of production
...

Entrepreneurs aim to maximise their profit, so they always attempt to make different strategies in
their businesses
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For example, a greater degree of division of labour in the production process should improve
productivity
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They might also improve the quality of human capital through education and training
so that the skills of the labour force can be enhanced, thereby increasing output per worker
...
If there is a move towards more intensive capital production, such as through making
greater use of machinery with high levels of technology, this should enable an economy to produce
more
...

Other than enterprise, there are also other factors that contribute an outward shift of the
production possibility curve in a mixed economy
...
For example, if the birth rate of a country substantially increases or there was a
substantial increase in net migration into the country, this would increase the potential quantity of
labour available for employment
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In a mixed economy, there will be government intervention in the economy
...
Therefore, they are responsible for producing public goods which do not
give incentive for the entrepreneur to produce it because of the free rider problem as a result of its
characteristics: non-rival and non-excludable
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This is a way to
reduce government burden, and there could be more government spending on the infrastructure
which can increase the productivity of production, thereby shifting the PPC to the right as well
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They are the one creating jobs for the unemployed workers, utilising the resources they
have and making a living out of them
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When they earn more profit, they will tend to invest in capital goods to expand their
businesses
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At the same time, when the overall output
has exceeded the consumption level of the domestic economy, export activities will take place which
create an export revenue source for the country

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