the Effects of factor Growth (2)

The matter is more complex if one of the factors grows and the other does not .Suppose that the capital stock increases but the size of the labor force remains constant .how will the production-possibilities frontier change ? In answering this question ,remember the production assumptions from neoclassical theory and the Heckscher-Ohlin analysis.Assume that cutlery is capital intensive and cheese is labor intensive .if the capital stock grows ,it has the greatest relative impact on the capital-intensive product .If all the country is resources are devoted to the production of cutlery ,the expansion of the capital stock permits the country to reach ahigher output level (higher isoquant)than that reached prior to the growth of capital.the growth in capital also permits a larger amount of cheese to be produced for any level of cutlery because capital can be substituted to some degree for labor .however ,because cheese is the labor-intensive good,the potential impact on production is less than it is for the capital-intensive good.Consequently ,the PPF shifts outward asymmetrically in the direction of the capital-intensive good.this shift is demonstrated in panel.an analogous argument can be made for growth in labor when the capital stock is held constant .Then the production-possibilities frontier shifts outward in an asymmetrical manner ,with the labor-intensive product showing a greater relative response.the effect of growth in the labor force is demonstrated .