Question

1. Consider a country's production possibility frontier with machinery (capital goods) on one axis and consumer goods on the other axis. Tell me a story about how the rate at which the PPF shifts outward over time might be related to the current position on the PPF. Also relate that choice (about the current position on the PPF) to choices about savings and consumption.

Answer 1

Ans 4. Production possibility Frontier shows those different combinations of two different commodities which a producer is able to produce with the help of an optimum utilisation of the given resources.
Production possibility Frontier PPF is concave to the origin because of increasing marginal opportunity cost.
Marginal opportunity cost is the rate of sacrifice of one good in comparison to the production of another good.
Points on PPC or PPF shows the full and optimum utilisation of resources.
Point inside the PPF shows underutilization of the resources.
There are only two possible shifts in the PPF: one is a rightward shift that is also called an upward shift of the PPF and another is a left shift that is also called a downward shift of the PPF.
The rightward shift or the upward shift of the PPF shows
Improvement in technology
Growth of the economy
Increasing the resources
Progress in the effectiveness and efficiency of the factors.
So in this case the upward shift means there is change in both the goods. i.e. capital goods and the consumers goods.
Because a rightward shift means overall increase in the production of both the goods.
In this case both saving and consumption will increase.