Figure 1-3 The Effect of Economic Growth on the Production
Possibilities Boundary
The capacity to produce goods and services grows rapidly in some
countries, grows slowly in others, and actually declines in others. Growth
in a country’s productive capacity can be represented by an outward shift
of the production possibilities boundary, as shown in Figure 1-3. If an
economy’s capacity to produce goods and services is growing, some
combinations that are unattainable today will become attainable in the
future. What are the determinants of such growth and can governments
do anything to influence them?
Economic growth shifts the boundary outward and makes it possible to
produce more of all products. Before growth in productive capacity,
points a, b, and c were on the production possibilities boundary and
points e and f were unattainable. After growth, points e and f and many
other previously unattainable combinations are attainable.