3.1 The Production Possibilities Frontier
The government’s choice of education policy determines the economy’s pro-
duction possibilities which is shown graphically in Figure 1. The reason
that the frontier is vertical at the point where it intersects the horizontal
axis is that type I workers can only produce the primary commodity. The
maximum amount of X that can be produced is attained when all type m
and type h workers are employed in that sector. Given the education distri-
bution in order to produce more than θι units of Y (remember that a type I
worker can produce 1 unit of Y), efficiency requires that the first workers to
change employment are type m workers and, thus the middle section of the
frontier has a slope equal to 1. As the production of Y is further increased
the slope takes the value ^ because type h workers can each produce either
V units of X or V units of Y.
Figure 3: Production Possibilities Frontier
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