Question

In what circumstances may the production possibility frontier shift away from the origin? Explain.

 

 

Answer 1

A production possibility curve is drawn with a given endowment of resources and a given technology level. Accordingly, a PPF or PPC will shift away from the origin or outwards under the following two conditions:
1. If there is an increase in the resource endowment of the economy i.e. if there is an increase in the resource availability to the economy.

With a given endowment of resources and level of technology, if the initial PPC of the economy is represented by AB and, if the economy discovers new sources of resource, then it means that the economy can now produce more of both capital goods as well as consumer goods. The increase in the resource availability will shift the initial PPF/PPC outwards to the new PPC CD. 

2. If there is a change (appreciation) in the existing level of production technology.

If the technology employed in the production of both the goods appreciates, then the economy can produce more of both the goods. In the figure, with the appreciation of the production technology of both the goods, the initial PPC AB will shift outwards (rightwards) to new PPC CD.