Production Possibility Curve

Topics: Economics, International trade, Trade Pages: 4 (1244 words) Published: September 7, 2012
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 plays a major role in trade among the trading nations. Also, the removal of trade barriers or free trade greatly affects those nations standard of living. Free trade, however, also has advantages and disadvantages. BODY

A production possibility curve represents a combination of goods and services an economy can produce (Susan, 2011). If a countries production possibility curve is established with trade barriers in place, then that countries possibility is limited to what resources it can obtain to produce goods and services. The removal of those trade barriers would then allow that country to obtain more resources to produce more products 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. ”By definition, all points to the right or outside of the production possibility curve are impossible, given the limits of resources and technology” (Unknown Author, 2012). When the limits of a country are minimized by removal of trade barriers, an outward shift in the production possibility curve will occur.

A production possibility curve ultimately defines production efficiency in relation to a certain productive...

References: Edge, Ken. (1999) Economics, Charles Sturt University. Retrieved on June, 2012 from:
http://www.hsc.csu.edu.au/economics/global_economy/tut7/Tutorial7.html
Susan, S . (2011) Production possibility curve, Econedlink. Retrieved on June, 2012 from:
http://www.econedlink.org/lessons/index.php?lid=852&type=educator
Unknown Author. (2012) Production possibility curves, Minnesota State University, Retrieved on June, 2012 from:
http://www.mnsu.edu/its/started/website/krypton/
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