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Unit 1, Lesson 5: Shifting the Production Possibilities Curve

This lesson on shifting the production possibilities curve will be on the Basic Economic Concepts portion of the AP examination(s).

The production possibilities curve, as we know, shows the relationship between two options (one on the x-axis, the other on the y-axis) and how the opportunity cost of obtaining one over the other changes.

In the last lesson, we learned different ways the curve can look based on different opportunity costs. In this lesson, we will analyze how the same curve can shift.

Before we begin, let us cover what capital and consumer goods are.

Capital goods are essentially those which are utilized in the production of other goods.

Consumer goods are those which are made available to the general public for personal use.

First, we can quickly cover how the curve can be shifted inward or to the left. This is extremely uncommon and won't appear on your AP examination, but is good to know because it helps us understand.

For instance, let us use this graph as an example of a regular economy.


Now, let us assume that there is a tragic event, such as a natural disaster of some sort which destroys many of the resources in this country, damaging the economy.

The production possibilities curve would now shift inward.


Since there are less resources, there would be less capital goods and consumer goods produced, hence the inward shift of the curve.

In contrast, the economy can shift outward or to the right. This is far more common and can happen for one of two reasons:

1. The general obtainment of more resources, which allows more goods of all sorts to be produced.

2. Improvements in technology, which make production more efficient.



This new production possibilities curve shows that the economy can sustain the production of more capital and consumer goods.

Overall, the shifting of the production possibilities curve is important because it shows that economies can change over time. Also, the shifting of graphs is integral to AP Economics, as you will see in the future.

Key Terms
Capital Goods -  Goods which are utilized in the production of other goods.

Consumer Goods - Goods which are made available to the general public for personal use.

Review Question(s)
6. Which of these does NOT lead to the outward shift of the production possibilities curve?
     a) Improved Technology
     b) Increased Resources
     c) Increased Consumers

Resources
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