Economics Part A

Causes of Improvement in Manufacturing Capability

The following are some causes of improved manufacturing capability:

1. More workers.

 

2. Better skills or training.

3. Grants and loans from foreign countries.

4. Investment in tools and machinery to increase future output.

5.Research and development to find better methods of production.


Improved Manufacturing Capability Reflected in New PPC

If the manufacturing capability of a country grows for any reason (the addition of new workers, for example), it will be able to produce more goods and services. This will be reflected in a new PPC. The following diagram shows the new curve, A1 D1 which appears above AD, the original border.

  • Point D1 indicates that it is now possible to bake 1,400 loaves of bread, compared to the original production of 1,200.

  • Point A1 indicates that if the country produces only guns, 1,000 can now be made, compared with 800 previously.

  • Point C1 shows that the country can now offer a basket of goods with 1,200 loaves of bread and 700 guns, compared with the previous basket of only 1,000 loaves of bread and 400 guns (denoted by original Point C).

The explanation: With more workers, it is possible to produce more guns and bread. A new PPC is drawn between points A1 and D1, which offers more of each product than in the original curve AD. There are more guns and bread at Point C1 than at Point C.

Improved Manufacturing Capability


Improvements in one Product Results in New Production Possibilities Curve

Sometimes, a country improves its ability to manufacture only one product. If we assume that Country A develops a new type of oven that enables it to bake 1,300 loaves of bread, but this allows for if no guns to be produced. This again generates a new Production Possibilities Curve (curve A1D), which is illustrated in the diagram. All portions of the production possibilities curve have improved, except at Point D. The new oven allows Country A to bake the same quantity of bread using fewer workers. The excess workers who previously baked can now transfer to gun production.

Improvements in one Product

 

Causes of Improvement in Manufacturing Capability576Causes of Improvement in Manufacturing Capability