Economic+Growth,+PPF,+and+the+Tradeoff+Between+Capital+and+Consumer+Goods

   Economic Growth    Process by which a nation's wealth increases over time. The most widely used measure of economic growth is the real rate of growth in a country's total output of goods and services (gauged by the gross domestic product  adjusted for inflation , or "real GDP per capita"). Other measures (e.g., national income per capita, consumption per capita) are also used. The rate of economic growth is influenced by natural resources, human resources , capital resources, and technological development in the economy along with institutional structure and stability. Other factors include the level of world economic activity and the terms of trade .
 * Economic Growth, PPF, and the Tradeoff Between Capital and Consumer Goods **

       PPF    If a firm can produce two or more outputs or can produce output in two or more periods, a production possibility frontier can describe the possible combinations of output that can be attained for a given set of inputs. In [|economics], the production possibility frontier (the PPF, also called the production possibilities curve (PPC) or the “transformation curve”) is a [|graph] that depicts the [|trade-off] between any two items produced or groups of products. It indicates the [|opportunity cost] of increasing one item's production in terms of the units of the other forgone.        <span style="font-family: 'Times New Roman','serif';"> Tradeoff Between Capital and Consumer Goods <span style="color: black; font-family: 'Times New Roman','serif';">Investment involves a tradeoff between producing capital goods and consumption goods. Resources used to produce capital goods (which expand the economy's production capabilities and shift out the production possibilities frontier) cannot be used to produce consumer goods (which provide for the immediate satisfaction of wants and needs). This is one of the most fundamental tradeoffs in the economy. To produce more in the future, the economy must accept less satisfaction in the present. <span style="font-family: 'Times New Roman','serif';"> <span style="margin: 0cm 0cm 0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; text-align: left;"> <span style="color: black; font-family: 'Times New Roman','serif';">The capital-consumption trade off can be illustrated with two goods crab puffs and storage sheds. Crab puffs are a consumer good (feeding hungry party guests), and storage sheds are a capital good (often used by businesses to store productive inputs). <span style="font-family: 'Times New Roman','serif';"> <span style="margin: 0cm 0cm 0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-outline-level: 3; text-align: left;"> <span style="color: black; font-family: 'Times New Roman','serif';"> <span style="margin: 0cm 0cm 0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-outline-level: 3; text-align: left;"> <span style="color: black; font-family: 'Times New Roman','serif';"> <span style="margin: 0cm 0cm 0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-outline-level: 3; text-align: left;"> <span style="color: black; font-family: 'Times New Roman','serif';"> <span style="margin: 0cm 0cm 0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-outline-level: 3; text-align: left;"> <span style="color: black; font-family: 'Times New Roman','serif';"> <span style="margin: 0cm 0cm 0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-outline-level: 3; text-align: left;"> <span style="color: black; font-family: 'Times New Roman','serif';"> <span style="margin: 0cm 0cm 0pt; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; mso-outline-level: 3; text-align: left;"> Selecting an Option

<span style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: windowtext 1pt solid; display: block; mso-border-top-alt: solid windowtext .75pt; mso-element: para-border-div; padding-bottom: 0cm; padding-left: 0cm; padding-right: 0cm; padding-top: 1pt;"><span style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; margin: 0cm 0cm 0pt; mso-border-top-alt: solid windowtext .75pt; mso-element-anchor-horizontal: column; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 2.25pt; mso-element-left: right; mso-element-top: middle; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; mso-padding-alt: 1.0pt 0cm 0cm 0cm; padding-bottom: 0cm; padding-left: 0cm; padding-right: 0cm; padding-top: 0cm;"><span style="display: none; font-family: 'Times New Roman','serif';">Bottom of Form ||
 * <span style="font-family: 'Times New Roman','serif';">                <span style="border-bottom: windowtext 1pt solid; border-left: medium none; border-right: medium none; border-top: medium none; display: block; mso-border-bottom-alt: solid windowtext .75pt; mso-element: para-border-div; padding-bottom: 1pt; padding-left: 0cm; padding-right: 0cm; padding-top: 0cm;"><span style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; margin: 0cm 0cm 0pt; mso-border-bottom-alt: solid windowtext .75pt; mso-element-anchor-horizontal: column; mso-element-anchor-vertical: paragraph; mso-element-frame-hspace: 2.25pt; mso-element-left: right; mso-element-top: middle; mso-element-wrap: around; mso-element: frame; mso-height-rule: exactly; mso-padding-alt: 0cm 0cm 1.0pt 0cm; padding-bottom: 0cm; padding-left: 0cm; padding-right: 0cm; padding-top: 0cm;"><span style="display: none; font-family: 'Times New Roman','serif';">Top of Form

<span style="color: black; font-family: 'Times New Roman','serif';">The production possibilities curve presented here illustrates the tradeoff between crab puffs and storage sheds. Consider these alternatives: <span style="font-family: 'Times New Roman','serif';"> <span style="color: black; font-family: 'Times New Roman','serif';"> <span style="color: black; font-family: 'Times New Roman','serif';"> <span style="margin: 0cm 0cm 0pt 36pt; mso-list: l0 level1 lfo1; tab-stops: list 36.0pt; text-align: left; text-indent: -18pt;">  <span style="color: black; font-family: 'Times New Roman','serif';">At which point should the economy produce? A? E? I? Or another? That choice depends, in part, on the resulting shift of the curve and what this means for future production possibilities as well as the needs of the economy today. Societies want to achieve economic growth because it will shift the PPF outward and enable the economy to produce more capital and consumer goods, increasing consumption today and in the future. <span style="font-family: 'Times New Roman','serif';">
 * <span style="color: black; margin: 0cm 0cm 0pt; mso-list: l1 level1 lfo2; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt; text-align: left;"><span style="font-family: 'Times New Roman','serif';">If the economy chooses to produce at point A (0 sheds and 450 dozen crab puffs), then it is doing NO investing. It is giving up no consumption goods. All resources are being used to satisfy current consumption.
 * <span style="color: black; display: block; margin: 0cm 0cm 0pt; mso-list: l1 level1 lfo2; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt; text-align: left;"><span style="font-family: 'Times New Roman','serif';">If the economy decides to move from point A to point E, then it IS investing. This move means the production of 4 sheds at a cost of giving up 40 dozen crab puffs.
 * <span style="color: black; margin: 0cm 0cm 0pt; mso-list: l1 level1 lfo2; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt; text-align: left;"><span style="font-family: 'Times New Roman','serif';">Further investment can be had by moving from point E to point I. This move increases the number of sheds produced from 4 to 8, but the cost of the additional 4 sheds is 140 dozen crab puffs.

<span style="font-family: 'Times New Roman','serif';">References <span style="font-family: 'Times New Roman','serif';"> <span style="font-family: 'Times New Roman','serif';">[|http://www.amosweb.com] <span style="font-family: 'Times New Roman','serif';"> <span style="font-family: 'Times New Roman','serif';">Macro Text Book <span style="font-family: 'Times New Roman','serif';">Class Notes. <span style="font-family: 'Times New Roman','serif';">Example provided by Amosweb Econ site <span style="font-family: 'Times New Roman','serif';"> <span style="font-family: 'Times New Roman','serif';">Daniel Sokorinski