Problem A Type of Production Production Alternative A Production Alternative B P
ID: 1221589 • Letter: P
Question
Problem A
Type of Production
Production Alternative A
Production Alternative B
Production Alternative C
Production Alternative D
Production Alternative E
Production Alternative F
Production Alternative G
Butter
0
1
2
3
4
5
6
Guns
14
13
11
9
7
4
0
4. Can this economy produce outside its current production possibilities? How can technological changes affect the production possibilities curve? How can international trade permit consumption above its production possibilities curve?
Type of Production
Production Alternative A
Production Alternative B
Production Alternative C
Production Alternative D
Production Alternative E
Production Alternative F
Production Alternative G
Butter
0
1
2
3
4
5
6
Guns
14
13
11
9
7
4
0
Explanation / Answer
4. No the economy cannot produce outside its current production possibilities, it is so because every economy have limited amount of resources for eg. labor and capital which can be devoted fully to the production of a particular commodity or the production of the other commodity or a combination of both the commodity.The production possibilities curve shows the maximum possible production level of one commodity for any production level of another, given the existing levels of the factors of production and the state of technology.The PPF will shift outwards if more inputs (such as capital or labor) become available or if technological progress makes it possible to produce more output with the same level of inputs. An outward shift means that more of one or both outputs can be produced without sacrificing the output of either good. Conversely, the PPF will shift inward if the labor force shrinks, the supply of raw materials is depleted, or a natural disaster decreases the stock of physical capital.It is the limited resource which don't allow us to produce outside the production possibility frontier.However if suppose there is technical progress or say technical advancement then what will happen is the efficieny of labor and capital can be increased which will lead to grater production of output of both the commodity in that economy which was not possible earlier.In this case your production possibility frontier will shift outward and you economy will be able to produce those combination of bundles which are higher than the previous bundle you were producing without any technological change.
Without trade, each country consumes only what it produces. In this instance, the production possibilities frontier is also the consumption possibilities frontier. Trade enables consumption outside the production possibility frontier. The world PPF is made up by combining countries' PPFs. When countries' autarkic productions are added (when there is no trade), the total quantity of each good produced and consumed is less than the world's PPF under free trade (when nations specialize according to their comparative advantage). This shows that in a free trade system, the absolute quantity of goods available for consumption is higher than the quantity available under autarky.
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