Production Possibility Curve Essay

1259 Words Aug 28th, 2012 6 Pages
James Langley ECO 201
Module 1
Case Assignment

INTRODUCTION All economies have a production possibility curve and there any many different things that effect it. The removal of trade barriers or also known as free trade is not exempt from this list of things that affect an economies production possibility curve. Reduction in trade barriers can cause a country’s production possibility curve to shift outward. That is just one of many reasons that could cause an economy’s production possibility curve to shift outward. This production possibility curve can also determine an economy’s efficiency. In the Case in Point essay “The European Union and the Production Possibilites Curve,” comparative advantage
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An economy that is operating inside the production possibilities frontier would be considered inefficient (Susan, 2011). One factor that could cause a production possibility curve to shift outward would be the removal of trade barriers to allow that country to obtain more resources and produce more products and services. With trade barriers in place, a country’s possibility is limited to what resources it can obtain to produce goods and services. With that allowance of extra resources, the country could possibility produce more goods and services causing a production possibility curve to shift outward. Thus, with the limits of a country minimized by removal of trade barriers, an outward shift in the production possibility curve will occur. Another factor that could cause a production possibility curve to shift outward would be an increase in capital. Similar to the other example, an increase in capital would allow a country to obtain more resources. This increase in resources would then increase the amount of product that could potentially be produced shifting the production possibility curve outward. With the removal of trade barriers trade will increase greatly. The majority of the trade within the Union was between industries. Comparative advantage was the driving force that influenced trade between these industries. Thus, comparative advantage’s role in trade among member nations was that is increased trade greatly between the industries. Also, with

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