Production Possibilities Example

Production Possibilities Example Production Possibilities – Coursework Example Production Possibility Frontier (PPF) attempt to describe the relationship between three important economic variables i.e. scar choice as well as opportunity faced by a nation. (Kaplan, 2002). While depicting how rationalization of scarce resources can be made while considering the opportunity cost, PPF can be either contracting or expanding therefore subsequently reflecting the economic growth taking place in such an economy. When PPF expands, it may be considered that due to better utilization of resources i.e. low opportunity cost, economy is growing.However, Production possibility frontier of a nation may contract or move inward under certain conditions. One of the primary factors due to which a nation’s PPF may shift inward is the depletion of the resources of that nation. Due to, wars, natural catastrophe such as Tsunami, Plagues, earthquakes etc., the resources of the nation deplete at the higher rate than the capital formation process in the economy. For example, wars may cause the depletion of labor force because majority of the employable population would be engaged into potentially non-productive activities which on one hand will not only reduce the labor required to exploit the resources but on the other hand would include majority of labor force into non-productive activities.Considering an example of a hypothetical economy which only produces one good or service, it may be important to note that when if the opportunity cost of producing such good or services increase, the PPF may shift inward too because it would be too expensive to produce such good or service. Under such conditions, the PPF of a nation may shift inward.Bibliography1. Kaplan, J. (2002). Scarcity, Choice and the Production Possibilities Frontier. Retrieved January 14, 2009, from University of Colorado: colorado.edu/Economics/courses/econ2020/section1/section1-main.html