Question

Suppose a nation's PPF shifts inward as its population grows. What happens, on average, to the material standard of living of the people? Explain your answer.

Short answer

On average, the material standard of living decreases when a nation's PPF shifts inward due to population growth. This is because the per capita share of resources decreases, resulting in fewer goods and services available per person.

Step-by-step solution

Understanding PPF

The Production Possibility Frontier (PPF) is a curve that demonstrates the maximum feasible amounts of two commodities that an economy can achieve when using its available resources successfully. In this context, an inward movement of the PPF implies that the country's production potential has declined, possibly due to factors such as a decrease in available resources, or in this case, population growth.

Impact of population growth

When a country's population grows without a corresponding increase in resources, the per capita share of the available resources decreases. Basically, there are more people sharing the same level of resources, leading to a decrease in the resource share per individual.

Average material standard of living

The material standard of living refers to the amount of goods and services available to an average person within the population. If there's a decrease in the per capita share of resources due to population growth (as in the inflection of the PPF), this implies that the material standard of living for an average person in the population will also decrease as fewer goods and services are available per person.