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Production Possibilities Curve - Essay Example

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The combination of the products and service is made on a pro-rata basis so as to achieve the optimal levels of output from the production process. Conversely, the production…
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Production Possibilities Curve
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Download file to see previous pages In coming up with the production possibility curve, a number of assumptions have to be made. The model assumes that the goods being combined are only two. In addition, the curve also implies that they two goods can be interchanged. Interchanging of the two products does not affect the production of products and services desired. Furthermore, an assumption is also made that the factors of production do not vary. Similarly, an assumption is made that the period is limited, there are no technological changes, and all resources are utilized (Tucker, 2011).
Most countries strive to manufacturer goods and services according to the production possibility curve. It is impossible for countries to produce goods and services beyond the production possibility curve. In addition, countries that produce in the curve are said to be inefficient. Precisely, it can be claimed that a country is not utilizing its resources adequately. The curve can shift outwards due to changes in a number of factors. Some of the factors may include advancement in technology and innovation of new methods of production (Russell, 2013).Furthermore, an outward shift can be brought about due to improved Gross Domestic Product and the economy in general. However, an inward shift of the curve is different. It is possible for the curve to shift inwards due to lack of sufficient factors of production. For instance, some countries entirely depend on oil as their primary factor of production. If such factors of production are, the production possibility curve will shift inwards. In addition, natural calamities can influence the curve to shift inwards (Tucker, 2011).
Natural disasters lead to loss of lives. Consequently, the nation’s labor force is significantly reduced. Hence, a nation’s factor of production is significantly reduced forcing the curve to shift inwards. In addition, the natural calamities affect industry from operating. Most of the available ...Download file to see next pagesRead More
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