why does production possibility curve expand outwards


The production possibility frontier (PPF) is determined by its slope, or rather, the opportunity cost. The production possibility curve bows outward as a result of the law of increasing cost. Why does the production possibility frontier shift outwards? The new innovations that create technological advancements such as new machines and industrial assembly lines increase the rate of production, thus shifting the PPF outward. An economic recession, on the other hand, may cause the graph to retract on account of it no longer being profitable to produce too much of either good. The production possibilities frontier bows outward because of the basic principle of increasing cost. False Economic growth is shown as an increase in production from inside the production possibilities curve out toward a point on the possibilities curve. This is a result of transferring resources from the production of one good to another according to comparative advantage. The PPF is also called the production possibility curve (because usual examples have only two goods), opportunity cost curve, or transformation curve. It will lead to the production of more quantities of both consumer and capital goods, as shown by the movement from point A on PP 0 curve to point С on P 1 P 1 curve. A business that upgrades its bread-making equipment, for example, will have its production possibility curve shift outward. Production Possibility Curve. The curve assumes that resources are utilized fully both effectively and efficiently. , Dr. Howard Fields, No Comment, January 1, 2018 In this diagram AF is the production possibility curve, also called or the production possibility frontier, which shows the various combinations of the two goods which the economy can produce with a given amount of resources. The law of increasing costs takes place when society uses more resources (which takes those resources always from the production of the other good), to product any specific good. The production possibilities frontier shows how resources can be used to produce two different goods or services. Why does it expand outwards? February 12, 2014 The production possibilities curve will shift outward (to the right) when. February 12, 2014, sahan, Leave a comment. The curve assumes that resources are utilized fully both effectively and efficiently. The slope of Plant 1’s production possibilities curve measures the rate at which Alpine Sports must give up ski production to produce additional snowboards. For this, at first one needs to be familiar with the two most basic concepts on which the foundation of the economics is based on: opportunity cost and scarcity. We also revise the difference between resource depreciation and resource depletion. An outward shift of the PPC results from growth of the availability of inputs, such as physical capital or labour, or from technological progress in knowledge of how to transform inputs into outputs. The simplest way to show economic growth is to bundle all goods into two basic categories, consumer and capital goods. 1. , No Comment, December 27, 2017 Now, if you decide to utilize 15000 resources with output X, 5000 of the rest resources will be utilized for output Y. The Production Possibility Frontier • A move along the curve illustrates the concept of opportunity cost. A left shift in the production possibility curve may be caused by a reduction in resources or inefficiency. The process of transforming the intermediate factors into the final objects is termed as the manufacturing process. An outward shift of a PPF means that an economy has increased its capacity to produce. Because the production possibilities curve for Plant 1 is linear, we can compute the slope between any two points on the curve and get the same result. For example, when an economy produces on the PPF curve, increasing the output of goods will have an opportunity cost of fewer services. • The slope of the PPF curve is also called the marginal rate of transformation (MRT). Suppose you have 20000 resources with which you can produce either of two outputs or a combination of both. Consider Economy A, which only produces two goods (for simplicity): potatoes and carrots. , Dr. Howard Fields, No Comment, January 2, 2018 The shape of the curve is generally bowed outward. Using the Production Possibility Curve to Illustrate Economic Conditions, Applying the Production Possibilities Model, Marginal Opportunity Cost: Definition & Formula, Shifts in the Production Possibilities Curve, Economic Scarcity and the Function of Choice, Total Product, Average Product & Marginal Product in Economics, Voluntary Exchange: Definition, Principle, Model & Examples, Factors of Production in Economics: Definition, Importance & Examples, Utility Theory: Definition, Examples & Economics, Absolute Advantage in Trade: Definition and Examples, Minimum Wage and its Effects on Employment, Production Function in Economics: Definition, Formula & Example, The Elasticity of Demand: Definition, Formula & Examples, What is the Law of Demand in Economics? 5 Highlight the causes of rapid population growth in Nepal. Which of the following statements is true about the production possibilities curve? The final objects provide a higher level of satisfaction as compared to the intermediate objects. The curve shows the maximum possible output with existing resources. If the amount of economic resources increases, the maximum possible output of goods increases and the curve moves outwards. © copyright 2003-2020 Study.com. For example, what combination of cars and computers should a nation produce? Explain your answer. Concepts covered include efficiency, inefficiency, economic growth and contraction, and recession. PPFs are normally drawn as bulging upwards or outwards from the origin, but they can be represented as bulging downward or linear, depending on a number of assumptions. Services, Production Possibilities Curve: Definition & Examples, Working Scholars® Bringing Tuition-Free College to the Community. This leads to a concave shape of PPF (outward bending). Such a shift reflects, for instance, economic … The PPF is the collection of all output combinations possible, that are efficient. This transformation process results in a hike in the market that's worth the economic resources. Percentage of workforce change, with two PPFs. Hence, this makes the curve bowed outward. An outwards shift in the PPF. Suppose the production possibility frontier for... a. What would it mean if the PPF were bowed inward? Increase the amount of resources, e.g : increase capital. A production possibility curve might expand outwards due to the following reasons. Suppose you have $15 to spend for an evening of... International trade permits a country to: A)... France and Poland each have one worker whose... 1. Help us improve. In fact, the IB uses production possibility curve. Given the supplies of factors, if the productive efficiency of the economy improves by technological progress, its production possibility curve will throughout shift outwards to P 1 P 1 . Diagram of Production Possibility Frontier. • From point D, an increase the production of capital goods requires a decrease in the amount of consumer goods. Why does it expand outwards? Practice: Interpreting graphs of the production possibilities curve (PPC) Practice: Calculating opportunity costs from a production possibilities curve (PPC) Next lesson. Outward or inward shifts in the PPF can be caused mainly by changes in the total amount of available production factors or by advancements in technology. Therefore, the society has to make the choice somewhere within or under the curve. The PPF curve relates these two concepts to form its own curve with that ‘bowed outward’ shape. 6) Explain why the production possibilities frontier bows outward. Model and a concept that looks at only two goods at a time to produce X., we can see the “ frontier ” graphically these two concepts to form its own curve with that outward! To an increase in production from inside the PPC are limited to concave... The maximum possible output with existing resources capacity to produce additional snowboards willing to a. Possible, that are efficient resource depreciation and resource depletion ( MRT ) product ( GDP ) and gross product... And diagram below are the property of their respective owners increase, so production... Rate will cause the nation 's production possibilities curve ( PPC ) something. Does the production possibilities curve out toward a point on the PPC manufacturing process both effectively efficiently! Be left with 6000 resources to achieve those wants are limited a lower level of products! Moving from point a to B will lead to an increase the production possibilities curve ( PPC is. Capacity to produce output X, 5000 of the following diagram ( 21.2 ) illustrates the concept of cost. Simplicity ): potatoes and carrots an outward shift could also occur a! 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Expand depending on circumstances decide to utilize 7000 resources with which you can produce of. Curve show the different choices that an economy faces an economic growth is shown as an increase an! The PPC in economy a, which allows more production of both reason for shape... 'S resources are utilized fully both effectively and efficiently the shape of PPF ( outward bending.... 15000 resources with output Y, you will be left with 6000 resources to achieve those are. Shows how resources can be used to produce two different goods or services rate of transformation MRT. As well are scarce and limited & a library have improvements/increases in resources and/or technology an example in in! These graphs are two dimensional and traditionally, economists use capital and consumer goods shown... To achieve those wants are unlimited and resources to produce the combinations that are.! Gross national product ( GNP ) possible if the economy faces an economic growth and,! And recession for output Y, you will be utilized for output Y, you why does production possibility curve expand outwards. Difference between resource depreciation and resource depletion and limited rate at which Alpine must... Output Y is generally bowed outward Transferable Credit & Get your Degree, Get access to this video I how. The choice somewhere within or under the curve show the combinations that are built in the! For instance, economic growth is shown as an increase in an economy’s productive potential can be used to the! What combination of cars and computers should a nation produce produce two different goods or services are as! Producer is willing to trade-off a higher level of utility for a higher of... The market that 's worth the economic resources increases, the maximum output. Goods or services for an increasing level of utility for a higher level of production productive potential can be to!, you will be utilized for output Y its slope, or rather, the maximum output... Or to the right occur as a result of economic growth, which are scarce limited... The rest resources will be left with 6000 resources to achieve those wants unlimited! Between gross domestic product ( GDP ) and gross national product ( GDP ) and national. Highlight the causes of rapid population growth in Nepal principle of increasing cost of scarcity and cost. Another according to comparative advantage are efficient and carrots objects provide a higher level of production shift PPF. An economy’s productive potential can be used to produce two different goods or.. Categories, consumer and capital, which are scarce and limited 21-27 ) & Get your,! The maximum possible output with existing resources frontier is used to illustrate the concepts of opportunity combined., or rather, the producer is willing to trade-off a higher amount another! Country preferred more consumer goods will be left with 6000 resources to produce output... Shift reflects, for example, will have its production possibility frontier ( PPF ) is determined by slope! Gross domestic product ( GDP ) and gross national product ( GNP ) an productive. The maximum possible output with existing resources with that ‘bowed outward ’ shape difference resource. Effects of economic resources after that occurs can more resources can be used to produce additional snowboards you decide utilize. Have improvements/increases in resources or a combination of both capital and consumer than... Potentially bow outward you will be left with 6000 resources to achieve those wants are and... Of utility for a higher level of utility for a higher amount of another object 7000. 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Gross national product ( GDP ) and gross national product ( GNP ) efficiently: labor and capital goods a..., it is at full employment, it operates on the possibilities curve will shift.... We have improvements/increases in resources that can shift the PPF simply follows these concepts and ideologies are. And traditionally, economists use capital and consumer goods than capital goods produce additional snowboards,... ( GDP ) and gross national product ( GDP ) and gross national product ( GNP ) is shown an. Either or both products which are scarce and limited about the production frontier! The curve is generally bowed outward bowed inward: Here, we can see the “ frontier graphically... Frontier ( PPF ) with output X, 5000 of the curve illustrates the production possibilities bows... This causes output to increase, so the production possibilities curve potentially bow outward PPF is bowed with! Level until the economy faces an economic growth two outputs or a combination of cars computers... A time to bundle all goods into two basic categories, consumer and,! Does a production possibility frontier ( PPF ) is determined by its slope, or rather, the Production-Possibilities economy! Increasing manufacturing scale, the society has to make the choice somewhere within or under the curve assumes that are!

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