Think of a country whose citizens are given an opportunity to choose what they want to consume. They can pick out products and services from a set of “bread and circuses” that lies within their area of production possibilities.

Let’s imagine that those people have decided to consume all the resources at the disposal of their country. In this event, the citizens’ choice will reach a production possibility frontier.

But what if they wish to consume more? How to increase production possibilities of the state’s inhabitants and hence move the nation’s production possibility frontier?

There are several ways they can do this, which are as follows:

1) Increase in the amount of resources

The main resources in the modern world are people (labor force) and capital as a tool in the hands of those creatures. It’s humans who generate benefits with the help of their labor as well as machines and technologies they themselves have created. As a result, the entire population enjoys the fruits of the wise guys’ labor.

So it’s not surprising that the governments of most developed countries seek to encourage the citizens of their nations to give birth to a lot of children. Moreover, such authorities try to bring in more immigrants so that they settle in their states, take up jobs and work there.

While producing benefits, people draw on tools that are getting more sophisticated and diverse year after year. Those tools, starting with a shovel and ending with computer technology intended to solve complex issues, are collectively referred to as capital (don’t mistake this notion for money that you keep in a safe or put into your bank account).

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By the way, capital also includes buildings and facilities as well as infrastructure (roads, bridges, warehouses and docks, etc.) used in the production of benefits.

The more sophisticated capital is in the possession of a worker, the more benefits he or she can produce. Particular mention should be made of the role of so-called human capital, that is, the skills and knowledge of each worker. The more human capital is available in the country, the more productive its labor force becomes.

A worker that runs a backhoe is able to carry out a larger volume of work than a laborer that executes his work using a shovel. However, in order to run a backhoe, you have to have a certain skill set.

2) Improvements in technology for the use of existing resources

You can increase the amusement intake of the inhabitants of a country if local theatres start hiring more artists and stepping up the number of plays produced. But you can choose a different path and invent a television that will broadcast the theatre performances all over the country.

Today we live in an era of rapid technical progress, the essence of which is that humanity comes up with the new ways of using what has been given to them by nature.

Not long ago, a black fluid oozing out of the ground was used in primitive lamps. That fluid is called oil. Nevertheless, by now, people have learned how to draw energy from oil, and this energy is currently moves the world, increasing possibilities for consumption manifold.

And it’s wonderful, since increase in consumption, contrary to popular belief, doesn’t lead to obesity.

When you go to a classical concert, take a philosophy class or go on a journey around the world, you also consume products that someone has manufactured.

3) Improvement of public institutions

The presence of a vast number of workers and a large amount of equipment doesn’t mean that all of this will work. The level of efficiency with which people interact with each other during the production process, the amount of time, savings, mental and physical energy they are ready to spend manufacturing new products, building new factories, inventing new technologies and performing the work itself are largely dependent on public institutions existing in society. They include laws, public authorities, law enforcement bodies and other organizations governing the relations between people in the process of production and consumption.

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Well-coordinated public institutions reduce the costs of citizens’ interaction with each other and provide incentives compelling people to focus their activity on the increase in the size of an economic pie.

4) Specialization and the use of the international division of labor

Let’s imagine that the country you live in has a neighboring nation with which your state wants to trade. In this case, both nations will start exchanging “bread and circuses”, which will lead to the enhancement of production possibilities of both states, and you know what?

Such a way of increasing production possibilities is no worse than the acquisition of new resources and development of new technologies.

That’s pretty much all we need to say on this subject

As you can see, the consumption level of a certain society is contingent upon the amount of resources at its disposal and technologies for the use of those resources.

If a society wants to consume more than it does at present, it can be accomplished through either the increase in the amount of resources available or through the increase in productivity of those resources.

The enhancement of production possibilities, for its part, can be achieved by improving technologies and public institutions and by growing specialization in international trade.


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