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3 PRIM059 2.5 Any movement from one point on a production possibilities curve to another point on the curve involves opportunity cost. Study instruction Study section 1.4: Further applications of the production possibilities curve The production possibility curve not only illustrates what combinations of goods and services the economy can produce efficiently but also shows how the production possibility frontier can be shifted outward to include combinations not previously attainable. This is a simplified illustration of the economic growth phenomenon. Two possible causes for economic growth are technological progress (producing more with the same resources) and an increase in the amount of resources available to the economy. For example, if South Africa experiences an inflow of skilled immigrants, production of goods and services could be increased (economic growth occurs). Obviously the opposite holds for an outflow of skilled emigrants. Are you able to illustrate what happens to the production possibility frontier in the latter case? Note Figures 1-2 to 1-4. Activity 3 Indicate whether each of the following statements is true (T) or false (F). 3.1 An increase in the available resources can be illustrated by a rightward shift of the production possibilities curve. 3.2 Economic growth can be illustrated by a rightward shift of the production possibilities curve. 3.3 The utilisation of previously unemployed resources will shift the production possibilities curve outward (to the right). 3.4 Unemployment is indicated by a leftward shift of the production possibilities curve. 3.5 Unemployment is indicated by a point inside the production possibilities curve. Study instruction Study section 1.5: Economics as a social science This section deals with certain aspects of economics as a science. Note the differences between economics (as a social science) and the natural sciences. Activity 4 Indicate whether each of the following statements is true (T) or false (F). 4.1 Economics studies human behaviour and is therefore classified as a social science rather than a natural science. Study instruction Study section 1.6: Microeconomics and macroeconomics Economic problems and phenomena can be analysed at two different levels. Economists base their predictions and policy advice depending on the level at which they study problems. At the one level (micro), the behaviour of individual units (eg firms, consumers) are studied. At the other level (macro) the behaviour of large or aggregate units (eg government, households, the business sector) are studied. If, for example, we want to study the factors which affect investment behaviour we can approach the topic from both perspectives. We could analyse the factors which say firm A (a coal mining company) would take into account when making investment decisions (eg the international price of coal). These