ABSTRACT
If a country’s labour and capital stock were being used as intensively as possible, then it would be impossible to put labour and capital to any new or additional activity without taking them away from somewhere else. This is referred to as being at the production-possibility frontier. 66 If the labour and capital in the UK economy were fully employed in this way, then it would be impossible to divert resources from steel fabrication into electronics, for example, without some reduction in the output of steel. However, the increased output of electronic goods might be worth more than the lost output of steel. Resources could be progressively diverted until the point at which the additional output of electronics would be worth less than the lost output of steel. Resources are said to be allocated optimally at those points at which no further switching of resources could result in a net increase in value. This is often referred to as being at the margin. This is the point at which the switch of the last (or marginal) unit of resources results in a net loss of value or welfare.
