Define the Production Possibilities Curve (PPC).
Production Possibility Curve (PPC) or PPF (Production Possibility Frontier) is a graphical representation of an economy’s production tradeoffs given the constraints of the resources that are fixed. It graphically represents the maximal mix of possible outputs that can be achieved by an economy by using its available resources optimally and efficiently. It is also defined as the curve, which depicts the maximum output options/possibilities for any two goods; assuming a defined set of inputs comprising of the resources and other productions factors such as labor, capital, and technology etc. These elements tend to prescribe where the PPC lies (World Economic Forum, 2014).
Define two things that would cause a point on the grid that is inside the curve to move closer to the PPC.
The two things that can cause a point moving closer or towards the PPC is increased amount of resources and the efficient use of the resource. The point inside the PPC indicates that the economy is inefficient. However, having increased resources and efficient ways of optimizing resources assist in moving closer to the PPC. Its best illustration could be the American economy, which lies somewhere inside the PPC during the times of Great depression. That is because during that time, production was extremely low and the unemployment was very high (World Economic Forum, 2014). However post to the WWII, it shifted from inside to somewhere on the curve as the American economy started producing more of the products with better production techniques. Other factors that may cause a point moving closer to the PPC is the opportunity tradeoff, which means that you have invested all your resources on producing one product replacing other. This would help the point on either of the axis (higher on the y-axis or farther of the x-axis) and ultimately closer to the PPC (Schwab & Martín, 2015).
Define something which will shift the curve outward.
Production within the PPC is inefficient and outside the PPC is unobtainable; however. shifting the PPC outwards can be achieved with the increase in production factors. In other words, with the increase in production resources such as labor, capital or technology, an economy is capable of producing more goods. This works according to the Law of Increased Opportunity, according to which, increase in resource allows to perform increased activity and apparently, results in increased output. Therefore, factors such as improvement in production techniques, technological advancements, amplified labor productivity, an increase in numbers of labors, and economic growth may shift the PPC outwards. This means that the production possibility of an economy has progressed (Schwab & Martín, 2015).
References
Schwab, K., & Martín, X. (2015). World Economic Forum’s Global Competitiveness Report, 2014-2015. Retrieved From http://rose.ccny.cuny.edu/~darlene/CrossRoads/PDFs/Science-2015-Vorosmarty.pdf on May 6, 2016
World Economic Forum. (2014). Global Risks 2014 (9th Ed.). Retrieved From http://www3.weforum.org.docs/WEF_GlobalRisks_Resports_2014.pdf on May 6, 2016
