Microeconomics - Assignment Example

Moreover, the possibility of allocative, distributive and productive inefficiencies in the manufacturing sector of the People’s Republic of China. The production possibility frontier is the maximum possible level of production that resources within an economy can produce successfully. It is like the boundary beyond which the same economy cannot sustain the production of any products (Jowsey, 2011). The curve bellow can best illustrate the concept of the production possibility frontier. The curve represents the boundary that this particular economy can produce the two commodities A and B.

It is the limit at which if the available resources can produce the commodities without strain. Two locations stand out in the curve above. At position x, the resources that are available are not fully utilized. This is mainly because at this point in time, the economy is not operating at a full potential. At point Y, the economy cannot operate because the available resources cannot sustain the production of two products. The economy can be sustained at Y only if there is an economic growth. However, that would still be difficult since there are limited resources that cannot be stretched any further.

According to Antonneli (2011, pp 145), the only possibility of this economic growth happening is through the advancement of technology. Efficiency, in this case, comes through technology and the labor cost reduced. However, this growth is nullified with the cost of introducing technology (Jowsey, 2011). This curve therefore is most likely the cap of what this entire economy can produce. Therefore tradeoffs have to be made on which resources to be distributed to which sectors in order to maximize their use.

To explain the concept of productive efficiency, consider the graph above. Assuming that the two commodities are not in any way related but, the desire to grow the economy