Explain how production possibilities curves can be used to demonstrate the problem of unemployment, the effects of technological change and the benefits of economic growth.
The Production Possibility Frontier is a model used to show the tradeoffs associated with allocating resources between the production of two goods. The PPF can be used to show the problem of unemployment, effects of technological change and the benefits of economic growth. Our wants are unlimited but the resources in our economy are scarce. In order to satisfy all our wants, all economies face problems of scarce resources to produce the wanted products. All our decisions affect the economy and contribute to the growth of our economy. The graphs illustrate results of the decisions our economy makes and marks our economic growth. In my essay I will be explaining how production possibility frontiers illustrate the problems, effects and benefits of unemployment, technological changes and economic growth.
The production possibility frontier can be used to show how opportunity costs rise when individuals/community make choices. The production possibility frontier (also known as the production possibility curve) shows the various combinations of two alternative products that can be produced, given technology and a fixed quantity of resources, when all resources are used to their full capacity. It shows the upper limit of what an economy can produce at a given point in time. All points on the frontier itself represent points at which the economy is operating at full productive capacity – that is, all resources are fully employed. If the economy were producing at a point inside the curve, it would be producing less than its maximum possible output and resources would not be fully employed.
Unemployment exists when some available resources are not used in the production of goods and services. In other words, some resources that could be used for production are not being used. This is indicated in production possibilities analysis by producing a combination of goods that places the economy inside the production possibilities curve. When some resources are not being used for production, the economy does not reach its full potential. If any of our resources are not fully employed, we would not change the frontier itself, but we would change our position in relation to it. Our economy would be producing at a point somewhere within the production possibility frontier.
A production possibilities frontier...