Question

Provide an example of how (if any at all) an event affects the location of a country's production possibility curve (PPC)? Now discuss the two major ways in which an economy can grow and push out its production possibilities curve.

Answer 1

Production possibility curve of a country shows the combination of output that the country can produce when all of it's resources are fully and efficiently utilized. The location of the PPC curve doesn't remain constant as it is dependent on resources, labor, technology etc. For example- if a country (which produces good X and Y) lowers the restriction on immigration which causes a large number of people entering the country, will increase labor force in that country. And therefore, PPC will shift outward because now the country is able to produce more of both goods.

Two major ways which can help an economy to grow and push out it's PPC are:

A) Advanced technology- it increases potential output for all goods and services because Advanced technology is more efficient than old one and help the economy to produce more goods at a lower cost.

B) more education or training (human capital) - more education and training means there will be more people with high skill and knowledge. This will increase the production of an economy, shifting the PPC outward.