Suppose that there is a positive productivity shock to all goods and services. This can be represented on the Production Possibility Frontier (PPF) as: Group of answer choicesA shift outwards of the frontierA convex curvature of the frontierA flattening of the frontierA shift inwards of the frontierNo change in the frontier
Question
Suppose that there is a positive productivity shock to all goods and services. This can be represented on the Production Possibility Frontier (PPF) as: Group of answer choicesA shift outwards of the frontierA convex curvature of the frontierA flattening of the frontierA shift inwards of the frontierNo change in the frontier
Solution
A positive productivity shock to all goods and services would increase the potential output of an economy. This would be represented on the Production Possibility Frontier (PPF) as:
A shift outwards of the frontier.
Here's why:
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The PPF represents all possible combinations of two goods (or categories of goods) that can be produced with available resources and technology.
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A point on the frontier represents maximum efficiency: all resources are fully utilized, and it's impossible to produce more of one good without producing less of the other.
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If there's a positive productivity shock, it means that for the same amount of resources, more goods and services can be produced. This increases the potential output of the economy.
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This increase in potential output would be represented on the PPF as a shift outwards of the frontier. This is because the frontier represents the maximum possible output, and this maximum has increased.
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The other options (a convex curvature, a flattening, a shift inwards, or no change) would not accurately represent an increase in potential output.
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