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Discuss the effect of technological innovation on the production possibility curve of an economy.

Question:

Discuss the effect of technological innovation on the production possibility curve of an economy.

Production Possibility Curve:

Production Possibility Curve is the locus of all the combinations of two goods which the economy can produce given the amount of resources it has. PPC is a concave shaped curve which shows the increasing opportunity cost of producing one good over other as we move along the PPC.

Answer and Explanation: 1

The effect of technological innovation on PPC:

When technological innovation takes place in the economy, the production process becomes more effective. As a result, the economy will be able to produce more quantities of both the goods. This is marked by a rightward shift in the PPC curve. The entire PPC curve shifts to the right, indicating that the economy can produce more more quantities of goods using the same amount of resources. The rightward shift indicates an expansion in the economy.

Rightward Shift in PPC due to Technological Advancement


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Production Possibilities Curve: Definition & Examples

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Chapter 11 / Lesson 28

Understand what the production possibilities curve is, and learn how to construct and interpret a production possibilities curve along with the example.


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