Using existing resources better is different from changing the frontier.
Actual output can rise because idle resources return to use or because productive capacity expands. A move from inside towards an unchanged PPC represents better utilisation of existing capacity. An outward shift represents a higher production limit, for example after more usable resources or better technology become available. Loss of resources can shift the frontier inward. An improvement limited to one activity may increase its axis intercept, the maximum of that output when none of the other is made, without changing the other intercept. Capacity is a maximum, not a promise that demand or organisation will make the economy produce on the new frontier.
- Output and capacity
- Actual output is what is produced. Productive capacity is the maximum that could be produced with available resources and technology.
- Better utilisation
- Utilisation means how fully resources are used. Bringing idle workers or equipment back into use moves production towards an unchanged frontier; it does not by itself increase the production limit.
- Changed capacity
- More usable resources or better technology can shift the frontier outwards. Losing productive resources can shift it inwards. A new limit does not guarantee that actual output reaches it.
- An improvement in one activity
- An intercept is where the frontier meets an axis: the maximum of that output when none of the other is made. Better repair tools can raise the repair maximum without changing the bench maximum.
Growth and its limits
Output versus productive capacity
Higher production may reflect better utilisation, greater capacity or both. The evidence must identify what changed before the correct diagram is chosen.
Future capacity
Training or investment can increase future capacity if it adds useful skills or equipment. Resources used for that purpose have alternative uses today, and the future payoff is not guaranteed.
Scarcity remains
An outward shift makes more combinations possible. It does not remove every competing use or establish that all wants can now be met.
| Change described | Appropriate representation |
|---|---|
| Existing idle resources return to use | Move from inside towards the existing frontier |
| Useful resources or technology improve | Outward shift of the frontier |
| Permanent loss of productive resources | Inward shift of the frontier |
| Technology improves repairs only | Expansion towards repair output; bench maximum may stay unchanged |
Worked example: Three different workshop changes
Start from the weekly workshop schedule. Consider each event separately, with no other change.
- Idle workshops reopen using machinery and skills already available. Output moves from (20 repairs,20 benches) to (20,35) on the same frontier. Capacity has not increased.
- New tools improve only bicycle repair productivity and do not help bench production. Maximum repairs can increase while maximum benches stays unchanged. Draw a frontier expansion towards the repair axis, not an equal shift of both intercepts.
- A fire permanently destroys some usable equipment for both activities. Production capacity falls, so the frontier moves inward under the new resource constraint.
- Buying more tools does not prove the workshops immediately produce at full new capacity. Training, organisation and other conditions affect actual output.
Watch out for this
Whenever output rises, the PPC must shift outwards.
First ask whether the production limit changed. Re-employing resources already available can increase actual output on an unchanged frontier.
Check your understanding
Previously idle workers return to existing jobs with unchanged skills, equipment and technology. Which diagram best describes the change?
- A move from an interior point towards the existing PPC.
- An outward shift simply because more is produced.
- A move outside the original PPC without changing its assumptions.