Authors libby rittenberg 83
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the production possibilities curve ABCD requires that factors of
production be transferred according to comparative advantage.
Points on the production possibilities curve thus satisfy two conditions:
the economy is making full use of its factors of production, and it is making
efficient use of its factors of production. If there are idle or inefficiently
allocated factors of production, the economy will operate inside the
production possibilities curve. Thus, the production possibilities curve not
only shows what can be produced; it provides insight into how goods and
services should be produced. It suggests that to obtain efficiency in
production, factors of production should be allocated on the basis of
comparative advantage. Further, the economy must make full use of its
factors of production if it is to produce the goods and services it is capable
of producing.
Specialization
The production possibilities model suggests that specialization will
occur.Specialization implies that an economy is producing the goods and
services in which it has a comparative advantage. If Alpine Sports selects
point C in Figure 2.9 "Efficient Versus Inefficient Production", for example,
it will assign Plant 1 exclusively to ski production and Plants 2 and 3
exclusively to snowboard production.
Such specialization is typical in an economic system. Workers, for example,
specialize in particular fields in which they have a comparative advantage.
People work and use the income they earn to buy—perhaps import—
goods and services from people who have a comparative advantage in
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org
83
