Question

3. Explain how the production possibilities curve can be used to illustrate each of the following:

o Unemployment

o increasing resource supplies

o technological advances

o unattainable production

Answer 1

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.