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?

Answer 1

Production would take place at a point inside the production possibility frontier

The Production possibilities curve is a curve that shows the various combination of two goods a company can produce when all its resources are fully utilised.  

The PPC is concave to the origin. This means that as more quantities of a product is produced, the fewer resources it has available to produce another good. As a result, less of the other product would be produced. So, the opportunity cost of producing a good increase as more and more of that good is produced.

Points inside the production possibilities curve means that the nations resources are not being fully utilised

When the unemployment rate increases, it means that labour resources are not been fully utilized. As a result, production would take place at point inside the production possibilities curve

Point outside the curve or to the right of the curve means that the production level is not attainable given the level of resources

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