A-Level Scarcity, Choice and How Resources Get Allocated

A production possibility curve (PPC) shows the maximum combinations of two goods (e.g. capital goods and consumer goods) that an economy can produce when its resources and technology are fully and efficiently employed. Shimano's investment in its Osaka and Yamaguchi facilities is spending on capital goods (new/upgraded plant and equipment). This has two possible effects to explain: 1. Actual growth (if there were spare capacity): if some resources were previously unemployed, the investment and associated production move the economy from a point INSIDE the PPC towards the curve, raising actual output and reducing unemployment. 2. Potential growth (the main point): investment increases the quantity and quality of the economy's capital stock. A larger, more productive capital base raises the economy's productive capacity, shifting the entire PPC OUTWARDS (to the right). Japan can now produce more of both goods - this is economic growth in the sense of an expansion of productive potential. The outward shift may be biased towards the capital-goods axis if the investment mainly raises capacity to produce capital. Diagram: draw an original PPC; show either a point inside moving toward the curve (actual growth) and/or the whole PPC shifting outward (potential growth) as a result of the increased/improved capital.