Here we are discussing three contexts of production
possibilities frontier.
1)
If government starts setting up technical
institutions: - It would lead to an increase in the number of skilled workers.
Thereby, it raises the production potential of the country by raising the
efficiency of the labour force. With skilled workers, it would lead to
technological innovations in the economy. When the level of technology
improves, PPC is expected to shift to the right. There would be better utilization
of the resources, and the economy would move closer to the PPC.
2) If
unemployment is reduced by government: - The production possibilities frontier is based on the assumption
that resources are fully and efficiently utilized. If there is unemployment,
the economy operates below the PPC. Resources are fully and efficiently utilized
when an economy operates at full employment. So a reduction in unemployment
means resources are being utilized fully and efficiently. Thus, the level of
production is higher than it was before, leading to GDP growth.
3)
If government starts promoting foreign capital:
- In the context of the production possibilities frontier,
when the government engages foreign capital, there is an increase in the flow
of money into the country. This in turn increases the availability of resources
to a great extent. It results in an increase in the country’s production
potential. So, there will be a rise in economic value, which leads to a shift
in the PPC to the right.