PPF - Outward Shifts - Online Tutor, Practice Problems & Exam Prep

Societies typically experience productivity increases due to advancements in technology or resource availability. A specific technological improvement, like enhanced pizza ovens, shifts production possibilities outward for that industry alone, allowing for more efficient resource allocation. Conversely, a general increase in resources, such as population growth or new technologies, shifts the entire production possibilities frontier outward, enhancing output for all goods. Understanding these shifts is crucial for grasping concepts like opportunity cost, economic growth, and market equilibrium in economics.

Technological Advances in an Industry

Alright. So up to this point, our resources haven't moved. Now we're going to see what happens when there's maybe a change in the amount of resources or technology available in society. So the idea here is that over time societies generally become more productive, right? So, you could imagine, you know, where we are now with our technology compared to 100 years ago, you would expect that we could probably produce more now than we could before. Alright? So we're going to talk about two types of outward shifts in this video.

The idea is that we're not going to really do any math here, but just kind of visualize what happens when, let's say in this first example, we have a technological advance in a particular industry. So when it's in a particular industry, only one side of it is going to move. So, I'm going to write up here, "one side." Right? One side moves, and we might have something like this. Where our original might have looked something like this. Let's say there was an increase. Let's say this is pizza down here and robots above. Let's say there was an advance in the creation of pizza, right? We found some new oven that can make pizzas faster, but that's not really going to affect our production of robots. Right? We didn't get any better at producing robots; we only got better at producing pizzas. So what we might see is something like this happen on the graph. Let me use green to signify our new situation.

So, you know, let's say new pizza oven over here on the right, and what's going to happen is notice that our maximum amount of robots stays the same, but now we can create more pizzas, right? So our cap on our robots is still at the same level, right, but now our maximum pizza creation is further to the right. But this also allows us to create more robots too, right? So let's say for the sake of example, we were producing at this point right here. We liked that amount of pizzas; we were reaching the right mix of stuff for the consumers in the economy at this point, but now we've got this extra pizza technology and let's say we're not even going to make more pizzas, we're happy with that amount of pizzas. Look, this extra technology made it so we can actually create this much more robots and that's because we're making the pizzas more efficiently. We can take some of those resources that were previously put into pizza, and now we can put them to robots and actually get more robots out of it. Cool. So only one side of the equation is moving in this example. Let's move on to the next one.

General Economic Growth

Alright. So let's compare that to a general increase in the availability of resources or technology, something like that. So before, we had industry-specific growth, like pizza ovens got better, right? So, pizza production improved. This is just a general increase, so maybe you know there's been a lot of immigration, our population has grown so there's more labor available, more resources, or I don't know, we go to Iraq and win a war and now we have all their oil so our productivity goes up. Anything like that, even a new computer that helps every industry. So let's kind of look at this on the graph. Where in the previous example one side was moving, here we're going to have both sides moving out. Okay.

So let's see, an example. Let's pretend this was our original curve something like that, right, and now we've had this general increase in our economy, and in green I'm going to draw our new curve. So what you're going to see is that both goods have seen a production increase. Let me draw that a little better. Right? So, everything's gone up. You see both of the sides have shifted out now. There's a shift out on both sides, right? And both of the sides here and here are further up. So, we can increase our production on both sides; it's just a general increase. And in these videos, right, we've been shifting stuff outward. Outward. It's very rare that you would ever shift anything inward. I've barely ever seen it, but like, you know, maybe if, I don't know, a meteor hits the Earth and all our resources are gone, or it'd have to be some kind of crazy apocalyptic catastrophe like that, and you'll see the curves shift inward, but generally, right, we get more productive, and we're going to shift outward like we've seen in these examples. Cool. Let's move on to the next.

The country of Clutchtopia has just stumbled upon a new technology as shown on the graph. 

If Clutchtopians demand 3 million pizza bagels, what is the productively efficient increase in robot production?

• A. 0
• B. 1 thousand
• C. 2 thousand
• D. 4 thousand

The country of Clutchtopia has just stumbled upon a new technology as shown on the graph. 

What type of PPF shift did Clutchtopia experience?

• A. Technological advance in the production of robots
• B. Technological advance in the production of pizza bagels
• C. General increase in the productivity of technology
• D. Decrease in pizza bagel production efficiency

The country of Clutchtopia has just stumbled upon a new technology as shown on the graph. 

What is the maximum amount of robots that can be produced in Clutchtopia after the shift?

• A. 0
• B. 2 thousand
• C. 4 thousand
• D. 6 thousand

Here’s what students ask on this topic:

What causes an outward shift in the Production Possibilities Frontier (PPF)?

An outward shift in the Production Possibilities Frontier (PPF) is caused by factors that increase a society's productive capacity. These factors include technological advancements, increases in resource availability, and improvements in labor productivity. For example, a new technology that enhances production efficiency or an increase in the labor force due to immigration can shift the PPF outward. This shift indicates that the economy can produce more of both goods, reflecting overall economic growth and increased potential output.

How does a technological improvement in a specific industry affect the PPF?

A technological improvement in a specific industry causes an outward shift in the PPF for that particular industry. For instance, if there is an advancement in pizza oven technology, the maximum production of pizzas increases while the production capacity for other goods, like robots, remains unchanged. This results in a PPF that extends further out on the axis representing pizza production, indicating that more pizzas can be produced without affecting the production of robots.

What is the difference between an industry-specific and a general outward shift in the PPF?

An industry-specific outward shift in the PPF occurs when technological advancements or resource increases affect only one industry, leading to increased production capacity for that specific good. In contrast, a general outward shift in the PPF happens when there is an overall increase in resources or technology that benefits all industries, such as population growth or a new computer technology. This results in an outward shift of the entire PPF, indicating increased production potential for all goods in the economy.

Can the PPF ever shift inward? If so, under what circumstances?

While it is rare, the PPF can shift inward under extreme circumstances that reduce a society's productive capacity. Such scenarios include natural disasters, wars, or significant depletion of resources. For example, if a meteor were to strike and destroy a large portion of a country's resources, the PPF would shift inward, indicating a decrease in the maximum possible production of all goods. This inward shift reflects a reduction in the economy's overall output potential.

Why is understanding PPF shifts important in economics?

Understanding PPF shifts is crucial in economics because it helps illustrate concepts like opportunity cost, economic growth, and market equilibrium. An outward shift in the PPF indicates economic growth and increased production potential, allowing for better resource allocation and higher standards of living. Conversely, an inward shift signals a reduction in productive capacity, which can lead to economic decline. Analyzing these shifts helps economists and policymakers make informed decisions about resource management and economic policies.