Question

Draw a PPC of two industry of oil products and food products. Figure out a specific point of before COVID-19 Production combination between oil products and food products. Draw an arrow and make a point of current COVID-19 economic situation due to COVID-19 Draw an arrow of current government stimulus policy impacts on PPC curve and make a point of the current policy impacts on the PPC curve Draw a future PPC curve of two industry after COVID-19 and explain the reasons of your drawing.

subject is Microeconomics

Answer 1

A Production possibility curve represents a depiction of combinations of two goods or services which any economy is capable of producing over a given period of time. In the Pre Covid-Season, this would be a normal situation representing different combinations of oil or food products which the country can manufacture. The production of goods is dependent on various factors such as the demand, price of raw materials as well as economic conditions.

Due to the Covid Situation, as indicated int he production possibility curve number 2, The overall production shrinks and reduces in value. Thus, we can say That production possibility curve number 2 happens at lesser quantity of both oil and food products than curve number 2 which is the result of the Covid situation as per the graph indicated.

Now, as the government continues its expansion drive to stabilize the economy, the production possibility curve in the future begins to rise and will shift from 2 to 3 in the long run and the policy decisions such as reduced taxes, subsidies and direct transfers to business owners and the end of COVID would mean that the local economy will begin experiencing technological advancements and increase in production capacity. The end result would be higher production levels than normal conditions as indicated in curve number 1

The following is the graph for the above explanation: -

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