Question

Choose appropriate answer: In a hypothetical economy that produces two goods, there is an improvement in...

Choose appropriate answer:

In a hypothetical economy that produces two goods, there is an improvement in the production of one of the goods. This will be illustrated by…
a) A point on the PPF diagram
b) An outward swivel of the PPF diagram
c) An outward shift of the PPF diagram
d) An inward shift of the PPF diagram

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Answer #1

PPF shows the combinations of 2 goods possible to produce with a given level of resources. But if the technology for one good is improved and this results in production of higher units of that good with the same amount of resources but no such improvement has occurred in the production of the other good then, the PPF will pivot or swivel outward. So option b is correct

It shifts parallely when the technology for both the goods improves and inwards if it deteriorates. So option c and d are incorrect.

A point on the same PPF doesn't imply any improvement, it only states the possible combination with the given level of resources, so option a is incorrect

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