Production Possibility Curve - A short Note 2016

Production Possibility Curve 

A production possibility frontier (PPF) shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed
The PPF will shift outwards when:

1. There are improvements in productivity and efficiency perhaps because of the introduction of new technology or advances in the techniques of production or an increase in the quality of labour
2. Better management of existing resources
3. More factors of production are available and used perhaps due to an increase in the size of the workforce due to inward migration or a rise in the amount of capital inputs available for businesses due to a rise in business investment
4. The discovery of new natural resources such as shale gas
5. Innovation and technological advances which makes exploration and extraction of known resources more commercially viable

Can a production possibility frontier shift inwards?
Yes – if this happened, then the productive potential of a country must have suffered perhaps due to:

1. The damaging effects of severe natural disasters such as a tsunami, floods, persistent drought and other extreme weather events
2. The economic damage caused by war and other types of conflict for example in failing states
3. Large scale net migration of people out of a country e.g. when there is very high unemployment - sometimes known as a brain drain or human capital flight
4. A fall in productivity of labour resources
5. Excessive extraction rates of renewable resources