Answer to Question #134249 in Economics of Enterprise for Sara

Question

A production A production possibilities frontier can:





shift outward but not inward.
You Answered
none of the above
shift inward but not outward.
Correct Answer
shift inward or outward.
shift neither inward nor outward.
possibilities frontier can:

Answer 1

$Answer$

Production possibility frontiers can shift inwards or outwards.

$Explanation$

A production possibility frontier(PPF) is a locus of all possible combinations of the two goods, x and y, an economy can produce using its scarce resources to the maximum extent possible. A production possibilities frontier can shift inward indicating a decline in the economy's production potential. An inward shift of the PPF indicates a fall in output for both goods, x and y, produced by the economy. Major drivers of this negative situation are a depletion in natural resources, depreciation of capital goods, capital flight, macroeconomic instabilities, brain drain, resource underutilization, and more. This situation entails economic decline.

An outward shift of the PPF implies an increase in the output of both goods, x and y, in the economy. The longrun outward expansion of the PPF signifies economic development and major drivers are discovery of new resources, technical innovation, improvement in labour skills, investment in human resources, and more.

Thus the production possibility frontier can shift both inwards and outwards. An inward shift is negative and is consistent with economic decline whereas an outward shift is positive and consistent with economic growth.