Global Economics: Effects on the Production Possibility Frontier

The production possibility frontier is a curve that shows the efficient combination of outputs; mostly two goods or services, that an economy can produce when all the available factors of production are used to their full potential (Dwivedi 525).

This curve illustrates the point at which the economy is most efficiently producing goods and services and consequently allocating resources in the best way possible. The goal of this paper is to explain the effects that recession and unemployment, increased technological advancements, and increased skilled labor will have on the product possibility curve.

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A production level that is less than or greater than the position indicated by the production possibility curve, means that resources are being managed inefficiently. This inefficiency results into a dwindling production level than the expected. The product possibility curve is drawn on the right as a concave from the origin, or as a linear bulging in towards the origin. Shifts in the product possibility curve have their origin from changes in factor inputs like; labor, raw materials, and technological knowhow.

Effects of recession and a fifteen percent unemployment rise on the product possibility curve

The current global economic crises has brought with it a fifteen percent increase in unemployment levels and recession. During such periods of recession, most factors of production remain idle and unutilized. Sloman affirms that such factors like land, labor and capital remain under utilized if not laid off, at such times of recession (200). Land that could be used for business expansion and building more factories remains idle, while labor is cut down by laying down a good portion of workers as an effort to reduce costs. The demand of capital equipments is reduced as firms cut down their expenditures.

The consequences of these actions will be an inward shift in the product possibility curve from the original position, to anew point inside the curve. Production taking place inside the product possibility curve instead of taking place on it is observed in periods of increased unemployment levels. This indicates that the economy is not achieving its maximum production.

Effects of the increased technological advancement on the production possibility curve

Radical reforms in the education sector have resulted into improved educational standards in the United States. The improved educational standard has favored research and development and innovation, leading to a transformation in the way goods and services are produced and offered. These transformations coupled with the technological revolutions have made production, marketing and distribution of goods and services cheaper. The productivity of resources both labor and capital have also been increased by this technological improvement, leading to production of more goods per unit time using the same quantity of resources (Dwivedi 28). The consequence is that market prices will fall and products will be cheaper and affordable to consumers, and the product possibility curve will shift outwards indicating increased output.

Effects of the change in immigration laws to enhance the labor force

The recent changes in the immigration laws have placed restrictions on the number of immigrants entering the United States. It is now a requirement that the immigrants receiving visas to live and work in the United States have some skills, knowledge or talents that will enhance the work force.

In this era of technological revolution, the more skilled a country’s work force is the more competitive it will be. Outsourcing cheaper skilled labor is more cost effective in the long run, compared to internal sourcing and training. This precious skilled labor if utilized will lead to an outward shift in the product possibility frontier, indicating increased output.

In conclusion, an outward shift in the product possibility curve is the desire of every nation. When the factors of production such as labor and capital are employed effectively, improved output will be achieved and affordable products availed to the customers. The improvements in technological knowhow and the changes in immigration law have worked for the benefit of the United States resulting into improved output even in periods of recession.

Works Cited

Dwivedi, D N. Microeconomics: Theory and Applications. New Delhi: Dorling Kindersley Publishers, 2008. Print.

Sloman, John. Essential of Economics. 2nd ed. Saddle River, NJ: Prentice Hall, 2001. Print.


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