Question

The official U.S. unemployment is at 4.1 percent, but the broader measure of unemployment that includes those who are unemployed due to economic reasons is 8.1 percent. A large number of the population who can work have given up looking for one due to lack of skills, where they live or lack of confidence. Using the Production Possibility Frontier graph, demonstrate what it means when a large number of working age population remains unemployed.

Answer 1

A PPF of an economy shows all the possible production point where the nation can produce with the available resource. Consider there are only two resources in the nation used for production they are labor and Capital. At the most efficient point, the nation will produce at point A and B which are lying on the PPF curve. These are the point where all the resources are employed perfectly in the nation.

In case of unemployment, the nation is wasting its resources and the production point will come down to C which shows inefficiency in the nation. It is related to wastage of labor resource because of the unemployment. If those resources were used efficiently i.e. all employed the nation can produce even higher output. Point C is where large unemployment is prevalent in the economy.