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Question

Show the difference between a movement along, and a shift in, a production possibility curve. Explain what might cause each to occur. Use diagrams to support your answer. [8]

Production possibility curve

[CIE AS level November 2017]

โš ๏ธ Warning : Essay models like this one will help you understand how to write and structure your essay. However, do not make the mistake of reproducing pre-prepared answers in your exam. Each exam question is unique and should be tackled in accordance to the context of the question.

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Answer

These are mistakes made by students, highlighted by the examiner's report

1. 'a number of candidates provided a great deal of pre-learned material on the production possibility curve that was of marginal relevance to the question'

2. 'few candidates addressed the issue of what might cause a movement along the curve'

[Step 1 : Define PPC in the introduction.]

A production possibility curve (PPC) is a simple representation of the maximum level of output that an economy can achieve when using its existing resources in full. The movement along with the PPC and a shift in the PPC are caused by different factors and have different effects.

[Step 2 : Explain the difference between a movement along, and a shift in, a production possibility curve.]

The difference between a movement and a shift in the production possibility curve is as follows :

โžค 2.1 When there is a movement in the production possibility curve, a country has to sacrifice some of the production of a good (e.g. manufactured good) in order to produce more of another good (e.g. agricultural goods). However, when there is a shift in the production possibility curve the economy is able to produce more (or less) of both goods (e.g. more or less of both agricultural and manufactured products).

โžค 2.2 A movement in the production possibility curve is caused by the decision to change the composition of goods produced whereas a shift in the production possibility curve is caused by a change in the factors available to an economy or a change in technology.

[Step 3 : Explain what might cause a movement in the production possibility curve.]

A movement in the production possibility curve is caused by the decision to change the composition of goods produced. For example, this could happen as a result of government directive in a command economy for example or through changes in demand for alternative goods in a market economy.

โžค 3.1 The effect of a movement along the production possibility curve is shown in the diagrams below.

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Consider an example where the free market decides to produce more clothing instead of food because it has become more profitable This sacrifice of food is the opportunity cost of extra clothing. The fact that to produce more of one good involves producing less of the other is illustrated by the downward sloping nature of the curve. For example, the country could move from point x to point y as shown in the figure above, in doing so, it would be producing an extra 2 million units of clothing, but 3 million units less of food. Thus the opportunity cost of the 2 million extra units of clothing would be 3 million units of food forgone. A production possibility curve illustrates the microeconomic issues of choice and opportunity cost.

[Step 4 : Explain what might cause a shift in the production possibility curve.]

There will be a shift in the production possibility curve when economies can gain or lose resources; the quality of resources and the state of technical knowledge can also change.

The figure below shows the outcomes of changes in the quantity and quality of resources and changes in technology.

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[Step 5 : Conclude]

To conclude, a shift in the PPC curve could be caused by a change in the factors available to an economy whereas the movement along the curve represents a change in the composition of goods produced. The decision to change this composition could be a result of market forces or through government policy. A shift in the ppc curve or a movement in the ppc curve both have different impacts on the economy.

[โžคExaminer's report ]

Most candidates who attempted this question were able to explain the causes and significance of shifts in a production possibility curve rather than a movement along it. Most were able to explain how changes in resources or technology would cause the curve to shift inwards or outwards and some good marks were awarded for this part of the question. Although many candidates gained credit for explaining what a movement along the curve represented only a few candidates addressed the issue of what might cause a movement along the curve. This could happen as a result of government directive in a command economy for example or through changes in demand for alternative goods in a market economy. Many candidates seemed unaware of this and failed to gain the available marks as a result. Again, a number of candidates provided a great deal of pre-learned material on the production possibility curve that was of marginal relevance to the question.

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โžคMark scheme
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For Knowledge and Understanding and Application of a movement along a PPC:

โžค For an accurately labelled diagram (1 mark) that shows a movement along a PPC curve representing a change in the composition of output (1 mark). (Up to 2 marks)

โžค And explaining that this might be caused by government direction in a centrally planned economy or through the operation of market forces in a free market economy. (Up to 2 marks) 4 marks maximum

Candidates need to provide appropriate diagrams that show the difference between the two changes. They then need to explain that a shift in the curve could be caused by a change in the factors available to an economy or a change in technology. The movement along the curve represents a change in the composition of goods produced. The decision to change this composition could be a result of market forces or through government policy.

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