Question

Suppose a newly developed production technology changes the production capacity in a country. How would you represent this situation with a production possibilities frontier?
A. The entire PPF shifts out.
B. The economy moves from a point below the PPF to a point on the PPF
C. The entire PPF shifts in.
D. The economy moves from a point on the PPF to a point beyond the PPF.

Answer 1

Answer:

A. The entire PPF shifts out.

Explanation:

Production possibilities frontier (PPF) also known as production possibility curve (PPC) is an economic tool that shows all trade-offs possible as well as the maximum  combinations of two commodities an economy is able to produce with the available resources an with the current stage of technology.

A country can operate inside the PPF, in which case the economy is said to be under-utilizing the available resources and it indicates inefficiency.

Also, a country can operate along the PPF which represent efficiency and full employment of resources.

Operating outside the curve is not possible, except there is technological progress or discovery of new resources that increases the current production capacity, in this case the entire PPF shifts outward from the original location.