Production Possibility Curve?

Question

Using a Production Possibility Curve to illustrate your answers,

a) what might be meant by an increase in productive potential?

b)Might an economy be operating at less than productive capacity?

Answer 1

a) The production possibility curve moves outward due to an increase or change in the factors of production. This ocures so the economy can produce more.

b) The economy is not on the PPC, but within it. This could be because of high unemployment or some other under employment of resources.

Answer 2

a) potential would mean that it is unavaliable with current resources, how ever an economy can increase its productivity through new technological advancements, or increasing its labour force. these things would lead to a shift on the PPC.

b) of course, producing at less than productive capacity means that some of your resources are lying idle and are not being used. on the graph this would be any point below the PP curve (since that all point on the curve assume that all resources or factors of production are use 100%). the greatest proof that this is possible is unemployment. labour is one of the facots of the production, and if not all of the labour power in an economy is being used then obviously the economy is operating at less than productive capacity.

what would not be possible is producing at MORE that producative capacity, as the economy simply doesnt have the resources at present time.

hope this helped