Question

Graphically show and explain the effects of an improvement in the state of technology.

Answer 1

Production possibility curve can be defined as the line by joining the points of different combination of two goods which can be produced by using all available resources efficiently.

So a point inside the PPF shows the inefficiency point, a point on the PPF shows the efficient utilization of the resources while the point outside the PPF shows the point which is unattainable with the given resources and technology.

A economy can grow either with the increase in resources or with technological advancement. So in the both situation the PPF of the economy shift outward.

Hence the effects of an improvement in the state of technology on the PPF will be rightward shift of the PPF from PPF to PPF1. All this has been shown in the below diagram.