Question

Explain what will happen to the production possibilities curve over time if society gives up some capital goods in favor of more consumption goods.

Answer 1

Introduction

At any point of time, a society can choose from various options available on what to produce. Usually in real time, any country would want to choose the best combination which is what the role of economists is in the country,

They help the country in achieving optimum levels of production by deciding on what is to be produced and in what quantities these will be produced respectively.

A production possibility curve is indicative of the combinations of different products which any country can produce at a given point of time. It represents two sets of products which are attainable and the country can then choose from the available options to arrive at an optimum set for itself respectively.

This selection takes into consideration various factors such as natural resources, employment opportunities and other political and socio-economic factors but the aim of each country remains to produce in the best possible combination respectively.

Explain what will happen to the production possibilities curve over time if society gives up some capital goods in favor of more consumption goods.

Considering an example in which a country currently has the option of producing capital goods and consumer ones, over a period of time, the countries resources will be exhausted in production of consumer ones.

As a result of this, the country’s future ability of more production will further decline. This happens because additional production of goods would require capital goods and the country would reach maximum after a certain period of time.

This would result in a shift of the production possibility curve inwards which would mean lesser overall production respectively.

This can be highlighted in a graphical way also as follows:-

The figure above, illustrates the production possibility previously at levels X1 and Y1 which indicate production of Capital & Consumer Goods.

Over a period of time, as no capital goods are added the production possibility curve shifts inwards and the amount of goods available to be produce get reduced respectively.

Please feel free to ask your doubts in the comments section.