Before we begin... let's refresh ourselves on what the Production Possibilities Curve / Frontier is?
What's the Production Possibilities Curve?
Production Possibilities Frontier (PPF) is a line that shows the maximum attainable combinations of two goods.
A typical PPF curve looks like this:
This red line represents all attainable & efficient combinations for production Good A and B.
The 7 Easy Examples of a Shift
- Technology Advancements result in a shift outward.
- Improved Education results in a shift outward.
- Population Growth results in a shift outward.
- Government Subsidies result in a shift outward.
- Natural Disasters result in a shift inward.
- Government Regulation results in a shift inward.
- Resources Depletion results in a shift inward.
Shift Outward in our Production Possibilities
Technology improvements, better education, or more resources available at our disposal are some easy examples that result in boosted production capacity.
What causes an outward shift?
Whenever our ability to produce a good improves, and in-turn we're able to generate more of it, our "production possibilities" increase. This results in the PPF/PPC shifting outward to embody that increase, as it represents out potential output.
How does an outward shift look?
Imagine our ability to produce Good Y increases. We'd shift the PPF/PPC outwards like so:
Shift Inward in our Production Possibilities
A loss of resources, natural disasters, or stricter regulations are some easy examples that result in reduction of production capacity.
What causes an inward shift?
Whenever our ability to produce a good worsens, and in-turn we're able to generate less of it, our "production possibilities" decrease. This results in the PPF/PPC shifting inward to embody that decrease, as it represents out potential output.
How does an inward shift look?
Imagine our ability to produce Good X decreases. We'd shift the PPF/PPC inward like so:
