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This diagram illustrates the difference between economic growth and economic development using production possibility curves (PPCs). Economic development can occur through a reallocation of resources along an existing PPC, while economic growth is represented by an outward shift of the PPC due to increased productive capacity.
PPC₁: The initial production possibility curve showing maximum output combinations with existing resources and technology.
PPC₂: The outward-shifted production possibility curve showing increased productive capacity due to economic growth.
Point on PPC₁ with more teaching material and fewer defence goods: Represents economic development without growth.
Point on PPC₁ with more defence goods: Represents growth in output composition without development benefits.
Point on PPC₂ with more of both goods: Represents both economic growth and economic development.
The initial production possibility curve (PPC₁) shows the maximum combination of defence goods and teaching material that the economy can produce with existing resources and technology.
A movement along PPC₁ from the initial point toward more teaching material (blue point) represents economic development without growth, as resources are reallocated toward goods that may improve welfare without increasing total capacity.
A movement along PPC₁ toward more defence goods (upper red point) represents economic growth in output composition without development, since production shifts toward goods that may not improve general living standards.
The outward shift from PPC₁ to PPC₂ represents economic growth, caused by factors such as technological progress, increased resources, improved human capital, or productivity gains.
The movement to the point on PPC₂ (purple point) shows both economic growth and development, since the economy can now produce more of both goods compared to the initial situation.
The diagram highlights that growth and development are related but distinct concepts: growth increases productive capacity, while development focuses on improving welfare and living standards.
Explore other diagrams from the same unit to deepen your understanding
This diagram shows how a country exports goods under free trade when the world price is higher than the domestic equilibrium price.
This diagram illustrates how a country imports goods under free trade when the world price is lower than the domestic equilibrium price.
This diagram shows the effects of a tariff imposed on imported goods. A tariff raises the price of imports, protecting domestic producers but creating welfare losses.
This diagram shows the impact of an import quota that limits how many units of a good can be imported. By restricting imports, the domestic price rises above the world price, domestic producers expand output, consumers buy less, and there is a net welfare loss.
This diagram illustrates the effects of a production subsidy, where the government supports domestic producers to lower their costs and increase output. It is a form of protectionism without raising consumer prices directly.
This diagram shows how an export subsidy raises the domestic price above the world price, encouraging producers to export more while reducing consumer welfare and creating deadweight losses.
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