1.4 Production possibility curve (PPC) diagrams

In 2021, the production point on the UK's production possibility curve (PPC) changed. Average wages increased. The average annual wage of a waiter was $23,580 while that of a chief executive of a large commercial bank was $1,617,000. A rise in wages enables people to eat in restaurants more often. Some of the food sold in UK restaurants is imported. In 2021, the UK government signed free trade agreements, removing import restrictions, with a number of countries.

a) Identify two places where a production point could be located on a PPC diagram. [2]

b) Explain two reasons why someone may switch from eating in one restaurant to eating in another restaurant. [4]

In 2020, Singapore experienced a decrease in both its population size and its labour force. 2020 was a year of great change in a number of Singaporean markets. Some moved from disequilibrium to equilibrium. Despite all these changes, Singapore managed to increase its exports of goods and services.

c) Analyse, using a production possibility curve (PPC) diagram, the effect of a decrease in the size of a country's labour force on its economy. [6]

In Greece, rich households spend more than the average household. The amount of spending in an economy influences whether its production point is on or inside its production possibilitycurve (PPC). In 2020, household spending in Greece fell. This affected some firms' plans to merge. It also increased unemployment. More than half of those unemployed in Greece had been unemployed for more than a year.

b) Explain the significance of a production point inside a PPC and a production point on its PPC. [4]

Global spending on the health sector, by both the private and public sectors, is the highest compared with all other sectors including education and defence. Investment in education and the health sector has resulted in new life-saving technology being introduced. However, demand for certain vaccinations has decreased over the years, shifting the demand curve of vaccinations to the left.

c) Analyse, using a production possibility curve diagram (PPC), the effect of increased investment in both education and the health sector. [6]

Sweden has a mixed economic system. In 2018, it was operating at a point inside its production possibility curve (PPC). In 2018, the country's schools employed nearly 2500 extra teachers. A few of these had previously been actors. A higher number had previously been government officials involved with regulation of Swedish monopolies.

b) Explain the difference between a point inside a PPC and a point outside a PPC. [4]

South east Asian countries have reduced tariffs between themselves through the ASEAN Free Trade Agreement. ASEAN member countries are also removing non-tariff methods of protection. The intention is to raise economic growth through more international trade. This should enable small and medium-sized firms in ASEAN countries to grow and increase their exports.

c) Analyse, using a production possibility curve (PPC) diagram, the beneficial effects for a country of the growth of its small and medium-sized firms. [6]

Russia's birth rate fell by 11% in 2017 to its lowest level for a decade. Over the next 30 years, Russia's population is forecast to fall from 144 million to 107 million. The government announced measures to reverse this decline in population. In 2017, it also announced privatisation plans and measures to reverse a decrease in investment which could lead to a fall in the quantity of capital goods. Privatisation can reduce monopoly power in a market.

c) Analyse, using a production possibility curve (PPC) diagram, the effect of an increase in unemployment on an economy. [6]

In 2017, the Japanese government announced improvements to its tax system. The amount of tax raised is influenced by the size and age distribution of a country's population. Japan's birth and death rates are falling, its population is ageing, and it has low immigration. Overall, Japan's population is decreasing.

d) Discuss whether or not an ageing population is a benefit to an economy. [8]

Ireland has one of the lowest rates of corporation tax in Europe. This has encouraged many multinational companies (MNCs) to produce in Ireland. Other reasons why firms want to produce in Ireland include access to freer trade with other European countries, higher labour productivity and government grants.

c) Analyse, using a production possibility curve (PPC) diagram, the impact of higher labour productivity on an economy. [6]

The main industries in the Seychelles, an island country in the Indian ocean, are tourism and fishing. The price elasticity of supply of fish is affected by the relatively short time that fish can be stored. Economic goods and free goods play a role in both fishing and tourism. With rises in the skills of workers and an increase in enterprise, GDP per head has increased by more than seven times over the last fifty years.

c) Analyse, using a production possibility curve (PPC) diagram, the effect of an increase in enterprise on an economy. [6]

The production process in the oil industry is capital-intensive. The pollution it generates means it is one cause of environmental market failure. A Nigerian oil monopoly is starting to produce more environmentally friendly liquefied petroleum gas (LPG), rather than kerosene, in an attempt to reduce pollution. The Nigerian government intends to split the monopoly firm into separate companies to improve efficiency.

c) Analyse, using a production possibility curve (PPC) diagram, the effect of reallocating resources from kerosene to LPG. [6]