Production possibilities of society. Production Possibility Curve. Technological choice of society
Production possibilities of society is the ability of society to production economic benefits with full and efficient use of all available resources at a given level of technology development. Since resources are limited, society is forced to make a technological choice, deciding which needs should be satisfied and which should not.
Thus, the limited resources determine the alternativeness of their use, necessitates an alternative choice from among the mutually exclusive possibilities of the most optimal option from the point of view of the goals of society. The alternative choice between directions of resource use can be reflected in the form of a production possibilities curve.
Production Possibility Curve shows the maximum possible volume of simultaneous production of two goods with full use of limited production resources, when at a given level of production and available technology there are no resources to increase the volume of production.
The economy is efficient , when all points of possible combinations of production of two goods are on the frontier of production possibilities (i.e. A, B, C, D, E). The economic system is inefficient , when different combinations of production of two goods are located to the left of the production possibilities frontier (point F).
In this case, society's resources are not fully occupied ( unemployment , incomplete utilization of production capacities, backward technology). Point F represents a combination of goods X and Y that is significantly less than what could be produced with the full and efficient use of available resources. Society must do whatever is necessary to move to the production possibility frontier.
For a society that has a certain stock of resources and knowledge and provides a full volume of production, point G is currently unattainable.
So, any economic system has a limited capacity at any given time and cannot move beyond the production possibilities frontier .
The transition from a seller's market to a buyer's market is a cycle consisting, as a rule, of three stages. The first stage is a period of slow growth in per capita consumption of a particular product. The first stage of the transition cycle corresponds to the Industrial Revolution, preceding the PC. The pace of technological progress at that time was relatively low, and the resource intensity of the products produced was high, which limited the production capabilities of society. During the period of the industrial revolution, demand was also met on a correspondingly limited scale. It should be added to the above that the first stage of the cycle is characterized by the dominance of the seller's market.
Each point on represents some maximum output of the two products. Thus, this curve actually depicts a certain boundary. In order to realize the various combinations of pizza production and robots represented by the points on the production possibilities curve, a society must achieve both full employment and production efficiency. Points inside (left and below) the curve are also achievable, but less desirable than points on the curve. These points reflect a situation where full employment and production efficiency have not been achieved. At points outside the production possibilities curve, such as at point W, the volume of production would be greater than at any point on the curve, but such points are unattainable with a given amount of resources and with a given production technology. The barrier created by limited resources and the current level of technology does not allow any combination of production of capital goods and commodities at a point outside the production possibilities curve.
The production possibilities of society can be used
C. The following causal relationship operates in the economy of society. An increase in the production of economic goods, cash income and consumer demand of the population causes an increase in the level of needs. Is there a limit to the progressive growth of needs? This is largely determined by the production capabilities of society.
In the previous section of the manual, we established that the rise of people's needs directly depends on the available production capabilities of society. Now we have to find out what are the boundaries of these possibilities and the trends in their change.
ECONOMIC NEEDS - These are needs that can be satisfied through the consumption of any goods or services. The desire to have free time is included in the category of economic needs because it is necessary to enjoy the consumption of some material goods or services. Goods are things that can be touched, i.e. physically tangible objects, food, shoes, cars, houses, etc. Services include things that cannot be touched by hands, such as medical care, notary or hairdressing services, education, etc. So, human needs for all these goods and services exceed the productive capacity of society.
Production possibilities of society scarcity, choice, opportunity cost, efficiency
Let's move from conditional comparison to a strict mathematical comparison of the first best and the second best. The Pareto-efficient state lies on the production possibilities frontier of society, and its finding can be viewed as a maximization problem with a constraint
The market sells 4 types of soft drinks. The production possibilities of society are such that the maximum number of varieties of goods is 6. By reducing the number of varieties of soft drink by one, it is possible to increase the volume of production of each variety by 2 million liters. Limiting rate of transformation trademarks release is the same. The utility function of society has the form U = NX, where N is the number of varieties of goods, X is the volume of output of each variety Should the state, maximizing social utility, welcome the entry of new sellers into the market or the exit of current firms from the market
When alternative M is chosen, a larger amount of resources will be spent on current consumption, will leave the productive turnover, and, consequently, will be excluded from participation in expanding the production capabilities of society. Accordingly, in a few years the production possibilities curve will only deviate to position A A.
| Rice. 1. The Production Possibility Curve of Society |
However, society does not stand still. Social and economic development is inevitable. Relying on one step of scientific and technological progress, it rises to another, to the next. Accordingly, the production capabilities of society also increase, that is, the boundaries of limited resources are pushed further and further. On the chart, this
How the production possibilities of society change in the context of economic growth
Production possibilities of society with given resources and in conditions of economic growth. The concept of imputed costs and the law of their increase.
Attention should also be paid to the fact that with the current maximum level of production possibilities, society is not able to simultaneously increase both military and civilian production and move to point S. Therefore, the transformation curve in economic theory is often called the production possibility frontier.
THE LAW OF INCREASING RELATIVE COSTS is a law that establishes the relationship between an increase in the production of one product at the expense of a decrease in another. It can operate in the case when the production possibilities of society are close to marginal, resources are limited, and profitability decreases. To increase one kind of product, the production of another is reduced.
| Rice. 12.3. THE PRODUCTION POSSIBILITY CURVE OF SOCIETY. Society can only get more protection from external attack (more guns) by giving up other goods (oil). | /info/148292"> the economy is the same as in problem 3. However, for j shirt production, new method, thanks to which one worker can produce five shirts per day. There has been no improvement in the production of cakes, (a) Show a new society's production possibilities frontier. (b) How does it compare to the previous boundary (c) If consumers choose to have both cakes and shirts, what is the public choice most likely to be about what to produce Economic growth is an increase in the productive capacity of society. It is measured by the growth rate of real GNP in absolute terms or per capita. Depending on the sources of growth, extensive and |
Production possibilities of society is the ability of society to production economic benefits with full and efficient use of all available resources at a given level of technology development. Since resources are limited, society is forced to make a technological choice, deciding which needs should be satisfied and which should not.
Thus, the limited resources determine the alternativeness of their use, necessitates an alternative choice from among the mutually exclusive possibilities of the most optimal option from the point of view of the goals of society. The alternative choice between directions of resource use can be reflected in the form of a production possibilities curve.
Production Possibility Curve shows the maximum possible volume of simultaneous production of two goods with full use of limited production resources, when at a given level of production and available technology there are no resources to increase the volume of production.
The economy is efficient , when all points of possible combinations of production of two goods are on the frontier of production possibilities (i.e. A, B, C, D, E). The economic system is inefficient , when different combinations of production of two goods are located to the left of the production possibilities frontier (point F).
In this case, society's resources are not fully occupied ( unemployment , incomplete utilization of production capacities, backward technology). Point F represents a combination of goods X and Y that is significantly less than what could be produced with the full and efficient use of available resources. Society must do whatever is necessary to move to the production possibility frontier.
For a society that has a certain stock of resources and knowledge and provides a full volume of production, point G is currently unattainable.
8. The main factors of production and their interaction.
Factors of production are the resources required for the production process.
Exists four main factors of production:
1) labor. This is the economic activity of people aimed at generating income and satisfying needs. In the process of labor, a person spends physical and mental energy. In various types of labor, intellectual labor or physical labor may predominate. Labor can be simple or complex, skilled or unskilled. The result of labor can be a material (a residential building, a parking lot, a bridge over a river) or an intangible product (for example, information, a service);
2) capital. These are means of production of durable or short-term use (raw materials, machinery, equipment, structures). Separately allocate money capital - financial resources intended for transformation into real. Money itself is not a factor of production, but plays a significant role in the activities of the enterprise;
3) land (natural resources). Earth is any place where a person is (rests, works, etc.). There are various enterprises on the ground. The earth is a source of minerals, natural resources. Land as an economic factor takes into account all these functions of natural factors in the economy;
4) technical progress. Industrial installations may have the same cost, but one of them may be new and the other obsolete. If other factors of production are the same, then the best economic results will be achieved by an enterprise using modern equipment;
5) information. In connection with the widespread use of computer technology, information begins to play a significant role in production. Ownership of information helps the company to carry out its activities more efficiently.
Interaction and combination of factors of production. Production requires certain resources that are used in the right combinations. All resources cannot participate in production in isolation. They interact only in certain combinations. All of them complement each other. At the same time, they interact. For example, machinery and equipment can be replaced by the labor of workers, natural materials can be replaced by artificial ones.
When one type of resource becomes more expensive for some reason, they try to replace it with a cheaper one, and accordingly, the demand for it increases. An increase in demand can lead to an increase in the price of a particular resource. Therefore, a change in the price of one of the resources leads to a change in the prices of other resources.
The supply of factors of production primarily depends on the specifics of each market. Depending on the factors of market development, an offer is formed. However, common to all markets is that the amount of resources offered for sale is limited in comparison with the needs in their production.
For the manufacturer, market prices are of great importance. It is on them that the level of production costs depends. With the available technical base prices will determine the amount of resources that can be used.
And their boundaries
Any society faces four problems: what, how, for whom and how much to produce. These problems would not exist if resources were not limited. It is the scarcity of resources that forces society to choose between relatively scarce goods. Therefore, decisions on these issues should be made taking into account the current situation on the market and pricing on it.
Economic aspect The problem of choice lies in the fact that specialists must find such an option for using limited resources that would provide maximum profitability and efficiency.
The essence of the problem of choice can be illustrated using the table of production possibilities (see Table 3.1).
Table 3.1
Alternative opportunities for the production of commodities and means of production
Table 3.1 shows two extremes: options A and E, in which all resources are directed either to the production of commodities or to the creation of means of production. However, society must choose from more reasonable options C, C, E, solving the problem: consume more today, live for today, or consume much more tomorrow, think about the future.
Choice in economics involves rational behavior subjects when they have to measure costs and incomes, and, based on this, make a choice.
The amount of one kind of good that we refuse or donate for the production of another good is called imputed or imputed. opportunity cost
The production possibilities of society and their boundaries are characterized by the function of production possibilities. Let's construct it according to the data of Table 3.1.
Production Possibility Curve- this is a line connecting alternative points of production of two types of goods (see Fig. 3.2).
Figure 3.2. - Production Possibility Curve
Features of the production possibilities curve:
· each point on the curve shows alternatives in the production of two goods;
· point "K" inside the curve shows that the available resources are underutilized, so you can increase the production of both goods;
· point "W" outside the curve shows the impossibility of production, because there are no resources with the existing production technology;
· the production possibilities curve has a downward slope, since an increase in the production of one good occurs at the expense of a decrease in the output of another good;
· the curve has the shape of a curved line, since as the production of the first good increases, more and more of the second good must be sacrificed.
A society can go beyond the boundaries of its production capabilities if it actively seeks and introduces scientific and technical innovations into production.
Any economic system faces a dilemma: on the one hand, the needs of society are limitless, completely insatiable; on the other hand, the resources of society necessary for the production of goods are limited or scarce. The problem of limited resources is a fundamental economic problem.
The scarcity of goods means that for any person and society as a whole, most goods and services are limited, that is, not enough to satisfy all needs. Limited resources means that the production capabilities of society are limited, that is, society is forced to produce a limited amount of goods. Increasing the production of one good, society is forced to reduce the production of another. Choosing one production option, you have to sacrifice other options. Society is faced with a choice of what goods to produce, and which should be discarded. This problem faced all economic systems in the past, today and will face tomorrow.
Using the simplest model, consider the production possibilities of society. Consider a hypothetical economy that produces two goods - X and Y. Let us also assume that the amount of resources and production technology are constant. Let us assume that this economic system is efficient, i.e., it works under conditions full time resources and total production.
If absolutely all resources are directed to the production of good X, then society will receive the maximum amount of it. In this case, the good Y will not be produced at all (option A). Another alternative is possible, when all the resources of society are directed to the production of goods Y. In this case, the good Y is produced in the maximum quantity, and the good X is not produced (option B). However, society needs both goods at the same time, for which it is necessary to reduce the production of each of these goods below the maximum. In this case, there are many alternative options for production combinations of resources and the corresponding production structure (for example, options C, D, E). This situation can be represented graphically. We plot the amount of good X horizontally, and the good Y vertically. As a result, we get the production possibilities curve. Each point on this curve represents a certain combination of goods of two kinds. For example, point C represents a combination of Xc pcs. item X and Yc pcs. product Y.
Production Possibility Curve shows" the maximum possible volume of simultaneous production of two goods with given resources and technologies that a given society has.
The economy is efficient, when all points of possible combinations of production of two goods are on the frontier of production possibilities (i.e. A, B, C, D, E). The economic system is inefficient, when different combinations of production of two goods are located to the left of the production possibilities frontier (point F). In this case, society's resources are not fully occupied (unemployment, underutilization of production capacity, backward technology). Point F represents a combination of goods X and Y that is significantly less than what could be produced with the full and efficient use of available resources. Society must do whatever is necessary to move to the production possibility frontier. For a society that has a certain stock of resources and knowledge and provides a full volume of production, point G is currently unattainable. Any economic system at any given time has a limited capacity and cannot move beyond the production possibilities frontier.
The problem of choice is the main problem associated with limited resources. However, limited resources lead to the emergence of several more. Such problems are competition, rationing and discrimination. Since there are many options for using resources, and the number of these resources is limited, competition inevitably arises. Competition- economic rivalry of commodity producers, aimed at obtaining at their disposal the largest amount of resources. Rationing- a distribution system that establishes the maximum amount of a good or resource that an economic unit can acquire. Rationing is a way of allocating a good or resource whose supply is less than demand. In a free market, this situation does not arise. At one time, rationing was widely practiced in our country, which since 1917 has experienced various types of shortages and subsequent rationing. As an exceptional measure, rationing also takes place in the economies of developed countries. For example, in the United States during World War II, it was quite effective. Discrimination- Restriction or deprivation of access to any benefits of certain categories of citizens on the basis of race, nationality, social origin, political views, etc. An example may be discrimination in the labor market.