Question

In the context of production possibilities curve (PPC), explain how an economy can achieve economic growth?

Answer 1

Economic growth is an increase in the aggregate output of an economy. It refers to sustained increase in the per capita output or an expansion in the productive capacity of an economy. It is the entire process that results in a broad sets of changes in the society and the economy that real per capita output available to a country's residents. Economic growth is primarily driven by improvements in productivity, which involves producing more goods and services with the same inputs of labour, capital, energy and materials.

And also economic growth is an increase in what an economy can produce if it is using all its scarce resources. An increase in an economy' s productive potential can be shown by an outward shift in the economy's production possibility frontier.

Production possibility curve (PPC) is a graph that shows all of the different combination of output that can be produced given resources and technology, when they are fully utilized. (Sometimes called production possibility frontier). Therefore, to achieve any point beyond PPC , there has to be an increase in the present supply of resources and technology advancement, which would lead to a rightward shift in the PPC as the overall production increases which is a sign of economic growth.



The above diagram shows the rightward shift of PPC cure. Point AB is the PPC curve and point CD is the rightward shift of PPC curve.

When the resources are reduced due to some reasons like natural calamities in the economy then the production of commodity also decreases as the use of these commodities. Therefore if the production of the commodities decreases it leads to inward shifts in the production possibility curve.

Above diagram shows the inward shift of PPC curve. Point AB shows the PPC curve and point CD shows the inward movement of production possibility curve.