• If the quantity or quality of a country's factors of production change, then the productive potential of the country also changes 

  • If the quantity or quality increases, this corresponds to an outward shift of the potential output of an economy as shown on a production possibilities curve model (see Subtopic 1.4.1). The country is able to produce more

  • If the quantity or quality decreases, this corresponds to an inward shift of the potential output of an economy as shown on a production possibilities curve model. The country now cannot produce as much as it used to

Influences On The Quality Or Quantity Of Factors Of Production Available To An Economy

Influence Explanation

Technological advances These can often improve the quality of the factors of production

e.g. development of metal alloys

Changes in the costs of production Changes in the costs of factors of production (for example, higher energy costs caused by the war in the Ukraine) reduce the output of a nation as the input prices are now more expensive

Changes in relative productivity Process innovation often results in productivity improvement e.g. moving from labor intensive car production to automated car production

Changes in education and skills Over time this increases the quality of labor in an economy

Changes in government regulations These can improve the quantity of the factors of production. e.g. deregulation of fracking (extracting oil from shale deposits) in the USA increased useable oil reserves

Demographic changes and migration A positive net birth rate or positive net migration rate will increase the quantity of labor available

Competition policy Preventing monopoly power results in more firms supplying goods/services in an economy and this increases the potential output of an economy