Question

Suppose there is a technological change that allows firms to produce goods and services with energy and hence fewer GHG emissions.Show graphically and explain how this will alter the PPF and a society’s potential choice of where to locate on the PPF?

Answer 1

The ability of the firm to produce more goods and services with energy shows a technological improvement. This improvement in technology would allow the firm to use capital and labor more efficiently. With the given same inputs, more output can be produced by the firm in less time than earlier.

PPF shows the various combinations of two goods that can be produced with given resources and technology.

Technological Enhancement will shift the PPF outward as shown in the figure. The shift shows that output of both goods have been increased and the society is able to achieve the unattainable points which were impossible to achieve earlier.

Society's potential choice would be to locate itself anywhere on the new PPF1 curve. All points on this curve are considered to be efficient.