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September 17, 2019 

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BUDGET PROPORTION: One of three elasticity determinants (time period and substitute availability are the other two) stating that the elasticity of a good tends to be greater when the proportion of the budget devoting to the good is greater. In other words, the price elasticity of demand for housing (which takes up a sizeable portion of most budgets) is greater than that for a pair of socks (which does not take up much of most budgets). Even small percentage changes in goods that constitute a sizeable share of income can be quite large in absolute terms. As such, buyers tend to more sensitive to price changes in big-budget expenditures. This elasticity determinant works primarily for the price elasticity of demand.

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ECONOMIC GROWTH, PRODUCTION POSSIBILITIES:

Economic growth is the process of increasing the economy's ability to produce goods and services. It is achieved by increasing the quantity or quality of resources. This process can be illustrated as an outward shift of the production possibilities curve.
Production possibilities, which analyzes the alternative combinations of two goods that an economy can produce with given resources and technology, indicates economic growth with an outward shift of the production possibilities curve. The general method of achieving economic growth is by increasing the quantities or qualities (Q and Q) of the resources.

The Growth Process

Shifting The Curve
Economic growth is demonstrated by an outward shift of the production possibilities curve. The curve presented in the exhibit to the right shows the production possibilities tradeoff between crab puffs on the vertical axis and storage sheds on the horizontal axis.

With existing resources and technology, the economy can produce any combination of crab puffs and storage sheds up to or on the production possibilities curve. However, it cannot produce any combination of production beyond the curve, such as point M.

While point M cannot be reached today with existing resources and current technology, it can be reached tomorrow through economic growth. Growth expands the frontier, causing it to shift outward.

To illustrate the process of economic growth, click the [Growth] button. Point M can be reached when economic growth expands the frontier. Once the process is completed, point M lies ON the new production possibilities curve. Another success story achieved through the miracle of economic growth.

Resource Quantities

One of two ways to achieve economic growth is by increasing resource quantities. Three notable resource quantity options are:
  • Labor: The quantity of labor can be increased through:
    • Natural population growth.
    • Immigration from other nations.
    • More participation and fewer nonworkers.

  • Capital: The key to getting more capital is investment, giving up satisfaction today to get capital tomorrow.

  • Materials: The key to increasing the quantities of materials is through exploration. Exploration is best illustrated by digging or drilling into the Earth's crust in search of mineral or fossil fuel deposits.

Resource Qualities

The other way to achieve economic growth is to increase resource qualities. Two important resource quality options are:
  • Education: Education increases the quality of labor resources. Better educated workers are more productive workers. Education includes both formal, sitting-in-a-classroom learning and informal, on-the-job-training experience.

  • Technology: Technology is the knowledge and information society as a whole possesses concerning the production of goods and services. Better technology enables more production. Technology concerns all aspects of production, but it is often seen as an improvement in the quality of capital.

<= ECONOMIC GROWTHECONOMIC GROWTH, SOURCES =>


Recommended Citation:

ECONOMIC GROWTH, PRODUCTION POSSIBILITIES, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2019. [Accessed: September 17, 2019].


Check Out These Related Terms...

     | economic growth, sources | full employment, production possibilities | unemployment, production possibilities | derivation, production possibilities curve | slope, production possibilities curve | opportunity cost, production possibilities | investment, production possibilities | law of increasing opportunity cost |


Or For A Little Background...

     | economic growth | production possibilities | production possibilities curve | assumptions, production possibilities | technical efficiency | graphical analysis | limited resources |


And For Further Study...

     | economic efficiency | efficiency | economic goals | seven economic rules | free lunch | three questions of allocation | four estates | government functions | political views | scarcity | technology | investment | business cycles | gross domestic product | labor force participation rate | structural unemployment | aggregate market | aggregate supply increase, long-run aggregate market | aggregate supply determinants | capital stock, aggregate supply determinant |


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