Production possibility curves, specialisation and the division of labour

What an economy can produce

The production possibility curve shows the limits of what an economy can produce. At AS Level you must explain its shape, the points on it, and what shifts it, and evaluate the causes of shifts. You also need specialisation and the division of labour, which push the curve outwards.

The PPC

The PPC shows the maximum combinations of two goods when all resources are used fully and efficiently. Points on the curve are productively efficient; points inside show unemployed or inefficiently used resources; points outside are unattainable. Moving from A to D, 2 more consumer goods cost 2 capital goods.

Why the curve is concave

A concave PPC shows increasing opportunity cost: each extra unit of one good costs more of the other. This is because resources are not equally suited to producing both goods. A straight-line PPC would show constant opportunity cost, where resources are equally good at both.

What shifts the PPC

An outward shift comes from an increase in the quantity of resources: more labour, capital or land. Or from an increase in the quality of resources: education, training, health, and better technology. Inward shifts come from natural disasters, war, emigration of skilled workers, or depletion of resources.

Is quantity the only cause?

A question may claim that an outward shift is only caused by more resources. That is not true. Improvements in quality and technology can shift it even with the same quantity of resources. And a shift may affect one axis more: new technology in farming shifts the curve mainly along that axis.

Specialisation

Specialisation means concentrating on a narrow range of tasks or products. The division of labour splits production into tasks, each done by a specialised worker, as in a chocolate factory. Countries specialise too, according to comparative advantage, a topic in the international trade lesson.

Benefits of specialisation

Workers become more skilled and faster at their task, so productivity rises. Less time is wasted switching tasks, and specialised machinery can be used. Lower unit costs mean lower prices, and the PPC can shift outwards.

Costs of specialisation

Repetitive work can be boring, lowering motivation and quality. Dependence: if one stage stops, the whole process stops; and narrow skills raise the risk of structural unemployment. It needs a large market and exchange, using money, to sell the extra output.

Shifts of the PPC

The causes of outward and inward shifts.

Mistakes that lose marks

Mistake one: showing a movement along the PPC for a change in resources. That shifts the curve. Mistake two: unlabelled axes on the PPC diagram. Mistake three: saying the curve is concave because of scarcity, rather than increasing opportunity cost. The fix: correct diagram, correct shift, correct reason.

The full-marks tip

The full-marks tip: draw the PPC with labelled axes, the original and new curves, and an arrow. Evaluate shifts by separating quantity, quality and technology.

On one card

So, on one card: the PPC and specialisation. Keep it for revision.