Essay Paper on Production Possibilities

The aim of this paper is to define whether there is the situation when the production possibilities frontier shifts inward. First of all, it’s necessary to give the definition of production possibilities. This term understands different combinations of goods, which can be produced in an economy on conditions that it uses its available resources and technology efficiently. The production possibilities frontier shows the alternatives in the production of goods. While constructing the production possibilities frontier it’s necessary to take into consideration the following postulates:

1. couple of goods (usually two). For production possibilities frontier construction it’s necessary to account two types of good in order to analyze the alternatives of given goods;
2. stable technology;
3. full employment – together this one and previous points compose favorable conditions for positive output of goods without necessity of decreasing the production of one of goods;
4. common resources – this understands that the same resources should be used in order to produce two types of goods;
5. fixed resources – this points understands that the output of goods can only win from additional discovered resources.

There appears the question: is it possible that the production possibilities frontier shift inwards and what are the reasons and conditions of such shift? Depending on conditions of productions of capital goods and level of depreciation of capital goods, the production possibilities frontiers can shift outward (when the production of capital goods is greater then the depreciation of capital goods), inward (if the production of capital goods doesn’t cover the depreciation) and if the production and depreciation is equal, than the frontier doesn’t shift.

So the destruction of capital goods and the disruption of people’s lives can cause the production possibilities curve to shift inward. Nevertheless, it can shift back on conditions that there would be ideas of how to improve the economical situation. Also resources rebuilding and advanced technologies application can recuperate…

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