Answer to Question #253334 in Economics for hjwkdl

Question

Many thinkers believe that we are rapidly depleting our natural resources. Assume that these are only two inputs (labour and natural resources) producing two goods (wheat and gasoline) with no improvement in technology over time. Show what would happen to the production possibility curve over time as natural resources are exhausted. How would invention and technological improvement modify your answer? On the basis of this example, explain why it is said "economic growth is a race between depletion and invention".

Answer 1

The production possibility curve would decrease and shift leftwards over time as natural resources are exhausted. Invention and technological improvement may contract this decrease, as less labour and natural resources would be required for production of wheat and gasoline.

Economic growth is a race between invention and deflation since it is a process that requires the need for new innovation and technology. But as time goes by the technologies become obsolete and there is the need for using newer technologies.