A Technology Breakthrough
A new production process raises productivity in both industries, shifting the whole production possibilities curve outward.
A Technology Breakthrough
Production PossibilitiesA new production process raises productivity in both industries, shifting the whole production possibilities curve outward.
Start on the frontier
The curve shows every combination of Good X and Good Y this economy can produce when all of its resources are fully and efficiently employed. A point on the curve is efficient, a point inside is attainable but wasteful because resources sit idle or are used badly, and a point outside is unattainable with today's resources and technology.
Now try it yourself: shift the curves in a graded FRQ drill, or open this graph in the free sandbox.
A Technology Breakthrough, step by step
- 1
Start on the frontier
The curve shows every combination of Good X and Good Y this economy can produce when all of its resources are fully and efficiently employed. A point on the curve is efficient, a point inside is attainable but wasteful because resources sit idle or are used badly, and a point outside is unattainable with today's resources and technology.
- 2
A breakthrough arrives
Engineers develop a production process that raises output per worker in the Good X industry and in the Good Y industry alike. Technology is one of only two things that can move the frontier itself, the other being the quantity or quality of the economy's resources.
- 3
The frontier shifts outward
Because productivity improves in both industries, the whole frontier shifts outward. Combinations that were unattainable yesterday are now within reach, and the maximum amount of either good the economy could produce has risen.
- 4
Growth without new resources
This is economic growth, and it came from producing more with the same resources rather than from acquiring more of them. That is the difference between a technology shift and the capital or labor shifts that move the frontier for the other reason.
Where it ends up
Better technology raises the maximum output of both goods, so the entire frontier shifts outward. That is economic growth.
Now draw it yourself
Same graph, graded on whether you move the right curve and leave the rest alone.
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