Question

A) What is the Production Possibilities Curve and how does it work? Explain why each of the following would cause the Production Possibilities Curve for a country to move outward or inward:

B) The average work week increases.

C) There is an increase in the retirement age.

D) Immigration decreases.

E) There are decreases in smoking, alcohol, and drug abuse.

Answer 1

A. Production possibility curve – PPC

The PPC shows the various alternative combinations of two commodities which a country can produce most efficiently by fully utilizing its factors of production with the given technology.

A PPC looks like this normally.

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it is easy to see that an increase in productivity or technology or total production will shift the PPC outwards and decrease in productivity or technology or total production would shift the PPC inwards.

B. As average work week increases, it will help in production of more quantitites of products. thus PPC will shift outwards .( of course assuming that productivity of labor does not decrease simultaneously).

C. Increase in retirement age , would mean more workers being available for production. thus may increase total production. So PPC will shift outwards.

D. decrease in immigartion may lead to less workers being available for work. So less production and thus PPC shifts inwards. ( But it would be true only if domestically available workers are fully employed.)

E. A decrease in smoking, alcoho, and drug abuse is most likely to increase the productivity os an average worker.Thus PPC will shift outwards.