The production possibility curve denotes the different
combinations of goods which can be produced using the current
resources in an economy. Let us explain the following points using
the production possibility curve:
- Unemployment: Unemployed takes place when an
economy does not employ all its available labor resources. This can
take place when the economy is operating inside the production
possibility curve i.e. at a lower capacity than the potential
capacity.
- Increasing resource supplies: Increasing
resource supplies increase the production capability of an economy.
So, this shifts the production possibility curve outside.
- Technological advances: Technological advances
increase the production capacity of an economy. So, this shifts the
production possibility curve outside.
- Unattainable production: Unattainable
production is production at a point outside the production
possibility curve. An economy cannot produce outside the production
possibility curve, so, points outside the production possibility
curve denote unattainable production.