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Use the production possibilities frontier (PPF) to demonstrate economic growth.

a. With consumption goods on one axis and capital goods on the other, show how the combination of goods selected this period affects the PPF in the next period.
b. Extend this comparison by choosing a different point on this period’s PPF and determining whether that combination leads to more or less growth over the next period.

User Gorky
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Final answer:

The Production Possibilities Frontier (PPF) demonstrates economic growth by shifting outward when an economy increases its resources or technology. Producing more capital goods may lead to greater future economic growth, as it expands production capabilities. A focus on consumption goods may result in less growth, as it does not expand productive capacity.

Step-by-step explanation:

The Production Possibilities Frontier (PPF) is a curve depicting all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors. When we depict economic growth using the PPF, we assume that:

Efficient use of resources is taking place when production is on the PPF.

If there is economic growth, such as through an increase in resources (labor, capital) or improvements in technology, the PPF shifts outwards.

For example, if an economy is producing more capital goods (machinery, buildings, etc.), represented on one axis of the PPF, and fewer consumption goods (clothes, electronics, etc.), shown on the other axis, this can lead to greater economic growth in the future. This is because capital goods contribute to increasing the productive capacity of the economy. If, in the next period, the economy has more resources or better technology, the PPF will shift outwards, indicating that the economy can produce more of both consumption and capital goods.

Choosing a different point on the PPF, such as one with a higher production of consumption goods and fewer capital goods, might result in less growth over the next period. Since capital goods are necessary for future production capabilities, an economy focusing on consumption goods might not be expanding its production possibilities as quickly.

User Laoyur
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Answer:

The PPF graph is attached.

The Production possibilities frontier PPF is a curve that illustrates the various amounts of two products that can be produced if both products rely on the same, finite resources for their existence. (Bloomenthal, 2020)

In the graph (attached), the y-axis has capital goods and the x-axis has consumption goods. A is a level where the country/ organisation can produce goods but resources are not maximised. B is also a production level, but it is unattainable because the resources are not enough .

a. In the current period, we shall say the goods produced are on point C; that is C1 of consumption goods and C2 of capital goods are produced. More of the capital goods are produced than the consumption goods. If this is profitable, the organisation can continue producing at this level. if is not profitable, or there is a hindrance in growth (e.g. capital goods decrease in demand) due to this production level, the organisation can move to level D. Production level D has D1 consumption goods and D2 capital goods. There are more consumption goods being produced than capital goods.

b. Production level E is has E1 consumption goods and E2 capital goods. There are more consumption goods being produced than capital goods. The growth level depends on the profitability of each level. if level D was not profitable enough in the current period, the economic status will force the organisation/country to move to production level E.

All these production levels affect economic growth. If none of these production levels are economically wise, the country/organisation may end up having to use all resources for production of one good and trade with another country/organisation to have the other, in the next cycle.

Use the production possibilities frontier (PPF) to demonstrate economic growth. a-example-1
User Ryan Guest
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