Question

1. Consider an economy that tries to achieve higher economic growth over time by encouraging production activities without paying any attention to the environmental quality. Assume that the resources and technology used in the economy stay the same. Show, using a well labeled diagram with appropriate production possibility frontier/s and indifference curve/s, how the economy might move over time.

2.Why is sustainability not likely to be attainable if an economy's PPF doesn't shift outward? Explain in one or two sentences.

Answer 1

1. If the production activities keep on increasing without any attention to environment, this will lead to depletion of resources in the economy. If the resources deplete, the production possibility frontier will move backwards overtime.

2. The forward shift of PPC implies that either the same resources are used for efficiently with better technology or we have greater stock of resources.

Now, growth can be sustainable only if we use the resources efficiently in a judicious way. Otherwise, the resources will deplete as we have seen in question 1 above. Thus, it is very important for an economy to keep on innovating or developing technology so that the wastage of resources is minimised and we achieve a sustainable growth even if our resource stock remains the same.