Production Possibilities AnalysisThis is a featured page

Growth and the PPC
  • The PPC shows the possibilities a certain economy can operate at. At the border of the PPC is the economy operating at it's maximum (economic efficiency), both allocatively and efficiency wise. To expand beyond the PPC, the economy must either increase quantity or quality of resources (both natural and human) and/or increases in technological innovations Models for Economic Growth - Welker's Wikinomics Page(i.e. supply factors must improve for the PPC to move out).














  • 4 supply factors (improvements in any of these can push the PPC curve out): natural, human, capital resources, technology

  • Demand Factor: In order to expand, the firms and businesses have to be willing to hire people in the labor force. If the labor force simply expands but no one is willing to hire them, then they will be left unemployed.

Labor and Productivity
  • Real GDP = hours of work X labor productivity
  • hours of labor input depend on the size of the employed labor force and the length of the average workweek
  • Labor force participation rate: the % of working-age population actually in labor force
  • labor force participation rate + size of working-age population determine the labor-force size
  • labor productivity is determined by technology, amount of capital available for use, quality of the labor, and how efficiently inputs are allocated, combined, and managed
Growth in the AD/AS model
  • When the economy experiences growth, it's PPC shifts outwards, which is equivalent to a rightward shift in the Long-Run Aggregate Supply, which is vertical and increases output. At the same time the ADwill increase because consumption and investment spending increase due more income being distributed to households and businesses from the increased output. Models for Economic Growth - Welker's Wikinomics Page




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