Chapter 16 Outline |
III. PRODUCTION POSSIBILITIES AND ECONOMIC GROWTH |
A. Production Possibilities for the Economy |
| 1. The economy uses resources to produce goods and services. |
| a. Land, labor, and capital are the three primary resources. |
| | 1. Land is all natural resources. |
| | 2. Labor is all physical and mental abilities used by people in the production process. |
| | 3. Capital is the man-made, durable items used in the production process. |
| 2. A production possibilities curve shows the maximum combinations of two goods and services that an economy can produce when resources are fully used and the best technology is applied. |
| a. The best technology is the technology that requires the fewest resources
to produce a given combination of goods and services. |
B. The Best Combination of Goods and Services |
| 1. The best combination of goods and services is the combination which satisfies wants as fully as possible. |
| 2. In order to achieve the best combination, the economy should produce at the point where marginal benefit and marginal cost are equal. |
C. Resource Accumulation, Technical Progress, and Technical Efficiency Change |
| 1. Economic growth, a rightward shift in the production possibilities curve, will
occur if resources expand. |
| 2. Technical progress, an improvement in the best technology that allows more output to be produced with a given amount of resources, will result in economic growth. |
| 3. Technical efficiency change, a change from the use of less than the best to the best technology, results in an increase in output. |
| a. Unlike an expansion of resources and technical progress, technical efficiency change moves an economy from a point inside the production possibilities curve to a point on the curve. The curve does not shift. |