Question

What are the two major ways in which an economy can grow and push out its production possibilities curve? a. Better weather and nicer cars. b. Higher taxes and lower spending. c. Increases in resource supplies and advances in technology. d. Decreases in scarcity and advances in auditing.

Short answer

The correct answer is option C: Increases in resource supplies and advances in technology.

Step-by-step solution

Understanding the Production Possibilities Curve (PPC)

The Production Possibilities Curve (PPC) represents the maximum combination of goods or services that can be produced in an economy given its available resources and technology. Growth in an economy implies that it can produce more goods and services, shifting the PPC outwards.

Evaluating Answer Choices

Evaluate each answer choice to determine which ones could feasibly lead to an outward shift of the PPC. This involves understanding economic concepts such as resource availability and technology.

Analysis of Option A

Option A suggests 'better weather and nicer cars.' While better weather can affect agricultural output positively, nicer cars don't inherently lead to production capacity changes; thus, this option is partially relevant.

Analysis of Option B

Option B includes 'higher taxes and lower spending.' Higher taxes can reduce disposable income and consumption, while lower spending can slow economic activity, making this option unlikely to push the PPC outward.

Analysis of Option C

Option C states 'increases in resource supplies and advances in technology.' An increase in resource supplies expands the capacity of production, and technological advances improve efficiency, both of which can shift the PPC outward.

Analysis of Option D

Option D mentions 'decreases in scarcity and advances in auditing.' While decreasing scarcity is relevant, advances in auditing do not directly enhance production capacity.

Conclusion

From the analysis, option C - 'increases in resource supplies and advances in technology' - directly leads to economic growth by expanding production capabilities, thereby pushing the PPC outward.

Key concepts

Production Possibilities Curve

The Production Possibilities Curve (PPC) is a fundamental concept in economics. It illustrates the maximum possible output combinations of two goods or services that an economy can produce. This is based on available resources and current technology levels. The curve shows hypothetical scenarios of production:

• If the economy uses all its resources efficiently, it will operate on the curve.
• If resources are underutilized or misused, production points will fall inside the curve.
• An outward shift in the curve indicates economic growth, as the economy can produce more than before.

By analyzing the PPC, we can understand how an economy maximizes its potential outputs and how shifts in the curve relate to economic growth.

Resource Availability

Resource availability refers to the total resources an economy can access for production. These include natural resources, human resources, and capital goods:

• Natural Resources: These are materials derived from the earth, like minerals, water, and land.
• Human Resources: These involve the labor force, its education level, skills, and health.
• Capital Goods: These are tools and machines used in the production of goods and services.

An increase in any of these resources can enable an economy to produce more goods and services.
Expanding resource availability directly affects the PPC by shifting it outward, signifying growth.

Technological Advancements

Technological advancements are innovations that enhance production efficiency. They enable the economy to produce more with the same amount of resources. These advancements lean on progress in areas like:

• Automation: Machines performing tasks traditionally done by human labor.
• Research and Development (R&D): Innovating new processes or products.
• Information Technology (IT): Improving data collection and communication processes.

As technology progresses, it usually leads to more efficient production, thereby allowing an economy to produce more output with existing resources.
This helps to push the PPC outward, signifying an overall economic growth.

Outward Shift

An outward shift of the Production Possibilities Curve indicates an increase in an economy's production capacity. It symbolizes growth and improvement in the economic well-being of a society. This shift can result from:

• Increased resource availability, enabling more production capability.
• Technological advancements, leading to productive efficiency.

When the PPC shifts outward, it means the economy can produce more goods and services than before, beneficial both domestically and globally.
Outward shifts highlight the impact of strategic investments in resources and technology, as they directly enhance productivity and output.