In a two product economy, how can more of one good be produced without reducing the...

In a two product economy, how can more of one good be produced without reducing the amount of the another good produced? identify at least THREE factors that contribute to this increase and explain how they contribute to the increase.

Expert Solution

More of one good can be produced without reducing the amount of the other good. This can be done through the following factors:

i. Increase in productivity: If the productivity of the workers rise, then with the same resources, the PPC (production possibility curve) of an economy can be shifted outwards. Rise in productivity implies that the same amount of workers can now produce more. That is the output per worker rises. This way, more of one good can be produced without reducing the amount of the other good.

ii. Improvement in technology: Improvement in technology is usually cost saving and efficient. This implies more output with the same level of inputs. This will also shift the PPC outwards.

iii. Increase in the stock of resources of the economy. If resources of the economy will increase, it can increase its production. This will also shift the PPC outwards and will lead to more production of one good without reducing the amount of other good.

Rahul Sunny answered 8 months ago

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