Fully discuss how the production possibility frontier (PPF) can be used to illustrate economic growth. Include in your answer the main factors that contribute to economic growth. Apply this concept of the PPF to a country of your choice.
Production Possibilities Frontier (PPF) refers to the maximum combinations of goods and services an economy can produce efficiently using its available resources and technology within a given period of time. It is the boundary between the goods and services that can be produced from those that cannot. A PPF shows all the possible combinations of two goods, or two options available at one point in time.
Table 1. A Bread vs Potatoes Production Possibilities Frontier. This production possibilities frontier shows a tradeoff between devoting capital resources to Bread Production and devoting them to Potatoed production. At A all resources go to Potatoes and at B, most go to Potatoes. At D most resources go to Bread, and at E, all go to Bread.
The opportunity cost of producing 40 Kgs of Potatoes is the 1 dozen of bread, and the opportunity costs of producing the 4 dozens of bread is the 60 kgs of potatoes. The people must choose between more potatoes and less bread or more bread and less less potatoes.
The different alternatives are are shown on graph below, Bread production is on horizontal axis and potatoes production is on vertical axis. Points A to F indicate the various combinations. A s we move from point A to F on the curve , the production of bread increases whilst the production of potatoes decreases. To produce a dozen of bread we must sacrifice 10 kgs of potatoes. The opportunity costs of each addidtional dozen of bread increases as we move along the curve. More bread can be produced by sacrificing a part of potato production. Economic Growth
All output combinations outside the PPF are unattainable with the available resources and technology. At these combinations, we could get more goods and services than what we are currently capable of producing. To attain these combinations, the two key factors are
1. Capital accumulation is the growth of capital resources, which includes human capital (increasing or improving the quality of resources
2. Technological change is the development of new goods and of better ways of producing goods and services.
Any of these changes will shift PPF outward to reach new points. The new PPF would represent the new efficient allocation of resources and the country now has more of its goods and services. This is what is called economic growth (or an increase in production capacity).
Economic growth is the increase of the output (or income) of the country. It is the expansion of production possibilities. Economic growth increases the well-being (standard of living) of the people, but it does not overcome the scarcity and cannot avoid the opportunity cost.
Without economic growth, living standards will decline as the population grows.
Discuss the economic concept of the long-run average cost curve and how it can be used to explain returns to scale, taking into account the factors that result in returns to scale.
All costs of a firm are variable. The factors of production can be used in varying proportions to deal with an increased output. The firm having time-period long enough can build larger scale or type of plant to produce the anticipated output.
South Africa is currently experiencing an economic downturn with key macroeconomic variables further indicating a cause for concern. In terms of this statement, discuss the policies that can be implemented by government to take South Africa out of this undesirable situation.
South Africa’s recent economic performance describes an economy that has consistently performed poorly relative to expectations. The factors underlying this growth shortfall are of course numerous and complex
This is a policy framework that takes into account the structural challenges the economy must confront:
· Economic expansion in South Africa tends to lead to a rapid growth of imports, putting the balance of payments under pressure and constraining the prospects for sustained growth.
· Investment and savings levels, which have been uncharacteristically low in recent years, will need to be substantially increased if strong growth is to be sustained.
· Unemployment remains a major economic weakness, contributing both to the high degree of income inequality and social fragmentation that characterise South Africa. Not enough jobs are being created as the economy grows. The macroeconomic dimensions of Government’s response to these challenges were
List and briefly explain the main types of unemployment, including in your answer a discussion of the type of unemployment that is most prevalent in your country.
There are three main types of unemployment – cyclical, structural and frictional unemployment. 1.
1. Cyclical Unemployment: – Cyclical unemployment is usually as a result of changes in the economic situation of a country. This type of unemployment usually arises when there is an economic recession. The economic downturn results in low demands for goods and service which subsequently results in lack of jobs for the working population. Low demands of goods and services affects various businesses and this limits the number of people that businesses can employ and under these conditions business may lay off employees. Cynical unemployment is usually short term.
2. Structural Unemployment: – This occurs when there is jobseekers do not have skills to meet the jobs available in the market. It also may be as result of available jobs being far away from the jobseekers. In recent years automation in business has also resulted in this type of unemployment.
3. Frictional Unemployment: – occurs when people move between jobs and the period a person is unemployed between losing one job and finding another job. This type of unemployment is generally shorter term
Cyclical unemployment in Zimbabwe results from economic decline due to several factors