Production Possibilities

Production PossibilitiesProduction possibilities landmark (PPF) or more commonly known as transformation curve is a graph that demonstrates the remnant between two goods that an economy with scarce resources could produce. There are two primary determinants that may greatly affect the orientation of the PPF of a nation. These are performance functions and factor endowments. There is relatively a real big possibility for the PPF of a nation to invoke inward. Instances such as the occurrence of war and scientific disturbances that may cause technical growth and development to cease are two of the possible causes of a PPF inward shift. The Principle of Diminishing Marginal Returns can also affect the shift of the PPF of a nation. new(prenominal) factors such as currency devaluation or technological and political innovation can also shift a nations PPF inward.Figure 1 shows the inward shift of the PPF curve of a nation that has undergone war. Due to the war, the resources of the nation, which are primarily used to produce the food and medicine have been devastated. This devastation of the resources leads to decrease in the rate of technological innovations. Moreover, the war also gave rise to the currency devaluation of the nation. By these, it can be concluded that these instances can sum up the possibility of the nations PPF to shift inward.Given a fixed proportion of resources added with another unit of resource needed by a nation for the performance of two goods and the machines needed by the nation in the production, the curve of the production possibility frontier of a nation would shift inward tothe left in time this is payable to the law of diminishing fringy returns. The law states that even though other units of resources are added to the nations tool for production, the marginal output of the nation would decrement until it reaches negative. And when it reaches the negative measure out, the PPF curve of that nation would shift inward. Curre ncy devaluation also affects the inward shift of a nations PPF curve when some of the nations resources are being purchased from other nations. The decrease in the value of the nations currency would affect the amount and the value of the resources purchased. Decline in the rate of innovations could also aid in the inward shift of the PPF curve of the nation since technological innovations may help develop and improve the production process.ReferencesDevadoss, S., Song, W. (2003). Factor Market Oligopsony and the Production Possibility Frontier Review of International Economics, 11, 729- 744.RetrievedNovember 5, 2007 from SSRN database.Goodwin, N. R. (2007, October 9). Production possibility frontier. Retrieved November 5, 2007 from http//www.eoearth.org/ bind/Production_possibility_frontier.Parasuraman, N. S. (2002, May 1). Production-Possibility Frontier (PPF) Retrieved November 5, 2007, from http//www.geocities.com/parasu41/PPF/.Suranovic, S. M. (2007). International Trade The ory and Policy Electronic Version. Retrieved November 5, 2007, from http//internationalecon.com/Trade/Tch60/T60- 7.php.