Economics Essay Example

Economics

Introduction:

The production possibility curve is a curve that represents the total number of goods and services that can be produced in an economy given certain levels of resources in the economy, the productions possibility curve helps check whether an economy has idle resources and if an economy produces optimally then this will result into economic growth, there are factors that lead to a shift in the production possibility curve, this includes changes in technology, change in the productivity of factors of production and increased efficiency and finally the curve will shift as a result of increased resources in the economy.

Production possibility curve:

The production possibility curve is a curve that represents the maximum or optimal resource usage when both goods and services are produced, the production possibility curve shows the position in which an economy can be producing its goods and services, an economy that produces below the production possibility curve is said to have idle resources, when the point is on the production possibility curve then the economy is optimally using all the resources available in an economy to produce both goods and services.

The diagram below shows the production possibility curve:

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The above diagram is the production possibility curve, when the economy produces at point A then the economy is under producing and there are idle resource in the economy, if the economy produces at point B then the economy is producing optimally where there are no idle resources in the economy, point C is unachievable and an economy cannot produce at this point, this is because the point is above the production possibility curve.

Shift in the production possibility curve:

The production possibility frontier will shift outward if there is increased productivity in the factors of production. If the productivity of the factors of production improves then the production possibility curve will shift outwards as follows:

The other factors that will cause the possibility production curve to shift is the improvement of technology, the curve will shift outward if there is an improvement in the technology in the economy.

The discovery and exploitation of resources in the economy will also cause a shift in the production possibility curve, if there is a discovery and the exploitation of resources that are used in the production of goods and services then the curve will shift outwards.

Effects of producing more goods for the future to the PPC:

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When an economy produces more goods then it is possible to achieve the point where the economy utilises all its factors of production and the point of production will be at along the curve, the excess production of goods and services will also tend to influence producers to explore new resources for production and this will lead to a shift in the curve to a higher level.

Conclusion:

The production possibility curve depicts the total number of goods and services that can be produced in an economy given the level of resources in the economy, the productions possibility curve helps check whether an economy has idle resources and if an economy produces optimally then this will result into economic growth.

There are factors that lead to a shift in the production possibility curve, this includes changes in technology, change in the productivity of factors of production and increased efficiency and finally the curve will shift as a result of increased resources in the economy.

If an economy produces more goods then it achieve the point where the economy utilises all its factors of production and the point of production will be at along the curve, the excess production of goods and services will also tend to influence producers to explore new resources for production and this will lead to a shift in the curve to a higher level.

Economics

References:

Brian Snow (1997) Macroeconomics: Introduction to Macroeconomics, Rout ledge publishers, UK