What Causes Production Possibility Curve To Shift?
This is one of the most searched questions on Google, and I am going to answer this on my blog. We have already learned the meaning of Production Possibility Curve, we also discussed the slope of Production possibility curve which is Marginal Opportunity Cost. So, before discussing the causes behind the shift of Production Possibility Curve, I will be discussing the properties of the Production Possibility Curve. Let’s start.
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Properties of Production Possibility Curve(PPC)
- PPC is downward sloping curve from left to right(Whole economics works like this; from left to right)
- PPC is negatively sloped, to increase the production of one good, we have to sacrifice the production of other goods.
- The general shape of PPC is concave to the origin because Marginal opportunity cost is mostly increasing.
What are the causes of the shift in a production possibility curve?
Remember when we discussed the meaning of the production possibility curve, we always assumed that resources and technology remain the same. Not able to recall? Let me repeat the meaning of PPC; The Production possibility curve shows the combination of two goods that an economy can produce, given the resources and technique of production. So, what will happen if the resources and technique of production change for both the goods? Well, it will cause a shift in PPC. Let’s discuss each case related to resource change and technology change.
- Change in Resources: If the resources changes, that is, if the available resources increase for both the goods; the PPC will shift to the right. If the available resources decrease for both the goods due to any natural calamity; the PPC will shift to the left. As shown below:
- Change in Technology: If there is an improvement in the technology in favor of both the goods; the PPC will shift to the right. If the technology becomes obsolete or outdated; the PPC will shift to the left. As shown below:
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