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Economics
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With economic growth and more machines and equipment produced, what happens to the PPF curve?

Aug 7th, 2015

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In economics, a production–possibility frontier (PPF), sometimes called a production–possibility curve, production-possibility boundary or product transformation curve, is a graph representing production tradeoffs of an economy given fixed resources 

The production possibilities curve illustrates all the possible combinations of how we can produce these two goods given the constraints we have, including the fact that resources are scarce.The production possibility curve is a hypothetical representation of the amount of two different goods that can be obtained by shifting resources from the production of one,to the production of another.

Economic growth is portrayed as a shift in the curve outward. During any particular time period, a society cannot be outside of its production possibility curve, but over time the curve can shift, as resources expand (as the labor force increases, for instance), and new technology is developed.The new curve further from the origin indicates that more goods and services can be produced, and thus consumed.By definition this shift in the curve represents increased economic growth.

When the economy grows and all other things remain constant, we can produce more, so this will cause a shift in the production possibilities curve outward, or to the right. If the economy were to shrink, then, of course, the curve would shift to the left. When the curve shifts outward, or to the right, that means output is increasing. When the curve shifts inward, or to the left, that means output is decreasing.

If workers, or other resources, are moved from one sector to another, then the position of the PPF will change, with an increase in the maximum output in the industry receiving the resources, and a fall in the maximum output of the industry losing resources. 



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Aug 7th, 2015

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