Question

Suppose an economy experiences an increase in unemployment across all industries. What is the result of this increase in unemployment on the production possibilities curve?(1 point)
The curve would shift outward because labor is considered a factor of production. By increasing productive resources, the maximum level of production will increase.
The curve would shift outward because labor is considered a factor of production. By increasing productive resources, the maximum level of production will increase.

The slope of the production possibilities curve would decrease because an increase in unemployment would decrease the maximum level of production.
The slope of the production possibilities curve would decrease because an increase in unemployment would decrease the maximum level of production.

The curve would shift inward because labor is considered a factor of production. By reducing productive resources, the maximum level of production will decrease.
The curve would shift inward because labor is considered a factor of production. By reducing productive resources, the maximum level of production will decrease.

The level of unemployment has no effect on the production possibilities curve, so there would be no change to the production possibilities curve.

Answer 1

The curve of production possibilities would shift inward because labor is considered a factor of production. By reducing productive resources, the maximum level of production will decrease and unemployment level increases.

In a Market Economy, Employment and Production Levels are set by balance between Supply and Demand. In this situation, a reduction on Demand means that Level of Production is higher than what Market can afford and there are two possibilities: (i) Lowering prices of goods and services, which may be perjudicial for businessmen and capitalists but may allow to sell this surplus, (ii) Firing some workforce to eliminate Supply surplus, since there is a relationship between Workforce and Production, which is tinged with other production factors as Technology and Skills.

Hence, the curve of production possibilities would shift inward because labor is considered a factor of production. By reducing productive resources, the maximum level of production will decrease and unemployment level increases.

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