To see how this tool helps us to think about scarcity and the problem of what to produce, we consider




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g 10 units of food and 17 units of films. This is a feasible combination. From Table 1-3 it can be seen that this requires one person in the food industry and two in the film industry. But with only three people working, society has spare resources because the fourth person is not being employed. C is not a point on the production possibility frontier because it is possible to produce more of one good without sacrificing output of the other good. Putting the extra person to work in the food industry would take us to the point C, yielding 7 extra units of food for the same film output.

FIGURE 1-2 THEPRODUCTION POSSI8ILITV FRONTIER. The production possibility frontier shows the maximum combinations of output that the economy can produce using all available resources. The frontier represents a trade-off; more of one commodity implies less of the other Points such as H lying above the frontier are unattainable. They require more resource Inputs than the economy has available Points such as G inside the frontier are inefficient. By fully utilizing available resource inputs the economy could expand output and produce on the frontier.

[pic] Production possibility frontier

film industry would take us to the point 0, with 7 extra units of films but no loss of food output. : The production possibility frontier shows the points at which society is producing efficiently. More output of one good can be obtained only by sacrificing output of the other good. Points such as G, which lie inside the frontier, are inefficient because society is wasting resources. More output of one good would not require less output of the other. In our hypothetical example, the waste or inefficiency arises because some members of the potential workforce are not being used to produce goods. Points that lie outside the production possibility frontier, such as the point H in Figure 1-2, are said to be unattainable. It would be nice to have even more food and films but, given the amount of labour available, it is simply impossible to produce this output combination. Scarcity of resources, in this example the restriction that at most only four workers are available for producing goods, limits society to a choice of points that lie inside or on the production possibility frontier. Society has to accept that its resources are scarce and make choices about how to allocate these scarce resources between competing uses. In this example, the competing uses are employment in the food industry and employment in the film industry. Given that people like food and films, society should want to produce efficiently. To select a point inside the production possibility frontier is to sacrifice output unnecessarily. Society's problem is therefore to make a choice between the different points that lie ort the production possibility frontier. In so doing, it decides what to produce. It might select the point A, with no films but a lot of food, or the point C, with a more balanced mixture of food and films. Depending on society's preferences between food and films, it might choose any point on the production possibility frontier. However, in choosing a particular point, society will also be choosing how to produce. It will then be necessary to refer back to Table 1-3 to determine how many workers must be allocated to each of the industries to produce the desired output combination. As yet, our example is too simple to show for whom society produces. To answer that question, we need more information than the position on the production possibility frontier. Efficient production Inefficient production Unattainable points Society must choose Society's problem What society decide'*

G. Check your understandingthese statements correct or incorrect?

• At point G society has spare resources. ( • C is not on the production possibility frontier because one worker is

employed in another industry. ( • If the extra person joins the film industry food output will go down. ( • Point C is feasible but not efficient. ( • Point H is a point which cannot be achieved. ( • Point H is unattainable because there are not enough workers. ( • Society must choose between inefficient and unattainable points. ( • Society can choose to produce at any point on the frontier. ( • Society's choice of point on the frontier does not affect how it produces. ( • The example the writer has given can easily answer the question

'for whom' society produces. (

H. Understanding discourse

[pic] Entrance

You want to find: • dictionaries ( • reference books ( • magazines ( • newspapers ( • books on macroeconomics (

• International Monetary Fund bulletins ( • World Bank reports ( • International Monetary Fund bulletins ( • government statistics (

----------------------is not on (he productionfrontier)

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