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24 February, 2016 - 16:12

Points outside the production possibilities curve are not achievable without expansion of the available resources. This requires that some resources be directed to the production of capital goods (thus sacrificing some consumer goods). In addition, technological progress is also often necessary for expanding the use of the existing resources.

Figure 2.2 Economic Growth

A study undertaken by Edward Denison revealed that the growth of the American economy has been attributable to increases in the factors of production (labor and capital in particular), but a large proportion of the growth is also attributable to improvements in productivity.

Review Quiz

  1. Any point inside the production possibilities curve is
    1. inefficient,
    2. optimum,
    3. impossible,
    4. shows growth.
  2. Which type of goods need to be produced today to assure increasing production of all goods in the future?
    1. superior goods,
    2. durable goods,
    3. inferior goods,
    4. capital goods.
  3. What the economizing problem shows, is that our resources are
    1. unlimited,
    2. property,
    3. ever growing,
    4. scarce.
  4. True or False: Over time, the goods which are considered luxuries often become necessities.
    1. true,
    2. false,
    3. no valid answer.
  5. What does the production possibilities model tell us?
    1. economic growth is impossible,
    2. some resources will always be unemployed,
    3. society must choose among alternative goods,
    4. all natural resources will eventually be depleted.
  6. What is the name given to "means of production"?
    1. assets,
    2. capital,
    3. equity,
    4. natural resources.
  7. Which of the above figures shows a production possibilities curve?
    1. media/image3.png
      Figure 2.3  Figure A
    2. media/image4.png
      Figure 2.4  Figure B
    3. media/image5.png
      Figure 2.5 Figure C
    4. media/image6.png
      Figure 2.6  Figure D
  8. Profit is the compensation for the use of which resource?
    1. land,
    2. capital,
    3. entrepreneurial talent,
    4. labor.
  9. Which of the following is referred to as a human resource?
    1. raw material,
    2. land,
    3. capital,
    4. labor.
  10. What is the name given to goods such as food, shelter and clothing, which most people cannot do without?.......................
  11. Profit is the compensation for the use of which resource?................... ...........
  1. A
  2. D
  3. D
  4. A
  5. C
  6. B
  7. B
  8. C
  9. D


  1. Outline the nature of the economizing problem. Carefully analyze society's wants and resources to verify the validity of the economizing problem.
  2. Show how economic growth can be studied with the help of the production possibilities curve. Identify the various factors necessary for growth.