Fixed Resources

Definition

Fixed resources refer to the factors of production that are limited in supply and cannot be easily increased or changed in the short-term. These resources are essential inputs for economic activity but their availability constrains the production possibilities of an economy.

5 Must Know Facts For Your Next Test

1. Fixed resources, such as land and natural resources, limit an economy's ability to expand production of certain goods.
2. The availability of fixed resources determines the shape and position of the Production Possibilities Frontier (PPF).
3. Scarcity of fixed resources forces societies to make tradeoffs and choices about how to allocate these resources.
4. Improvements in technology can shift the PPF outward by allowing more efficient use of fixed resources.
5. The opportunity cost of producing one good increases as an economy approaches the maximum production of its fixed resources.

Review Questions

• Explain how fixed resources influence the shape and position of the Production Possibilities Frontier (PPF).
  • The availability and scarcity of fixed resources, such as land, natural resources, and capital equipment, directly impact the shape and position of the Production Possibilities Frontier (PPF). A limited supply of fixed resources constrains an economy's ability to produce certain goods, resulting in a concave-shaped PPF that reflects the increasing opportunity cost of production as the economy approaches the maximum utilization of its fixed resources. Conversely, an increase in fixed resources, or more efficient use of existing resources through technological progress, can shift the PPF outward, allowing the economy to produce more of both goods.
• Describe how the scarcity of fixed resources forces societies to make tradeoffs and choices about resource allocation.
  • The scarcity of fixed resources, such as land, natural resources, and capital, forces societies to make difficult tradeoffs and choices about how to allocate these resources. Since fixed resources cannot be easily increased in the short-term, societies must decide how to best utilize them to produce different goods and services. This often involves making choices between producing more of one good versus another, as increasing the production of one good requires forgoing the production of another due to the limited availability of fixed resources. The opportunity cost of these choices becomes higher as the economy approaches the maximum utilization of its fixed resources, requiring societies to carefully weigh the tradeoffs and make socially optimal decisions.
• Analyze how improvements in technology can impact the relationship between fixed resources and the Production Possibilities Frontier (PPF).
  • Technological advancements can have a significant impact on the relationship between fixed resources and the Production Possibilities Frontier (PPF). Improvements in technology can allow for more efficient use of fixed resources, enabling the economy to produce more of both goods without requiring additional fixed inputs. This can shift the PPF outward, expanding the economy's production possibilities. Furthermore, technological progress may even allow the economy to substitute or create new fixed resources, further expanding the PPF. However, the scarcity of fixed resources will still constrain the economy's production possibilities, and the opportunity cost of producing one good will continue to increase as the economy approaches the maximum utilization of its fixed resources, even with technological improvements.

Related terms

Factors of Production:

The inputs used in the production of goods or services, typically categorized as land, labor, capital, and entrepreneurship.

Production Possibilities Frontier (PPF): A graphical representation of the maximum combination of two goods or services an economy can produce given its fixed resources and technology.

Opportunity Cost:

The cost of an alternative that must be forgone in order to pursue a certain action or choice.