Question

Use the production possibilities frontier (PPF) to demonstrate economic growth.

Answer 1

Answer:

The PPF graph is attached.

The Production possibilities frontier PPF is a curve that illustrates the various amounts of two products that can be produced if both products rely on the same, finite resources for their existence. (Bloomenthal, 2020)

In the graph (attached), the y-axis has capital goods and the x-axis has consumption goods. A is a level where the country/ organisation can produce goods but resources are not maximised. B is also a production level, but it is unattainable because the resources are not enough .

a. In the current period, we shall say the goods produced are on point C; that is C1 of consumption goods and C2 of capital goods are produced. More of the capital goods are produced than the consumption goods. If this is profitable, the organisation can continue producing at this level. if is not profitable, or there is a hindrance in growth (e.g. capital goods decrease in demand) due to this production level, the organisation can move to level D. Production level D has D1 consumption goods and D2 capital goods. There are more consumption goods being produced than capital goods.  

b. Production level E is has E1 consumption goods and E2 capital goods. There are more consumption goods being produced than capital goods. The growth level depends on the profitability of each level. if level D was not profitable enough in the current period, the economic status will force the organisation/country to move to production level E.  

All these production levels affect economic growth. If none of these production levels are economically wise, the country/organisation may end up having to use all resources for production of one good and trade with another country/organisation to have the other, in the next cycle.