mam, i solved an assignment 3 ques i didn't attempted otherwise ones i attempted were correct , mam one quesmeaning is not clear.
In which of the following cases will the effect on PPC be same as that in case of endowment of resources on PPC:
- chng in production technique of capital goods
- chng in prodc'n tech of consumer goods
- " " " " " both consumer and capital goods
- None of above
ans is 3
Dear Jia,
We can understand this by comparing the effect of change in endowment of resources on PPC and the effect of change in technology of capital and consumer goods on PPC.
We know that when the endowment of resources increase, the PPC shifts rightward as now the country has more resources to produce more output. While on the other hand, if endowment of resources decrease due to say natural calamities, then the PPC shifts leftwards. This we can show in the below diagram:
Now, we know that when the technology of say capital goods change, the PPC pivots outwards or inwards with the same vertical intercept. This is because with appreciation (depreciation) in technology, the country can now produce more (less) of capital good. While on the other hand, the production/output of consumer goods remain same. This can be shown as:
In contrast to this, if there is a change in technology used in producing consumer goods only then the PPC pivots with the same horizontal intercept. This is because now the country can produce more (or less) of consumer goods with an appreciation (or depreciation) of technology respectively, with the same level of capital goods.
Now, it is quite obvious that if we merge the two cases, that is, let's suppose now, both the technology of capital as well as consumer goods change together, then both the intercepts will change, and this will lead to a shift in the PPC. For example, if the technology for both the goods appreciate, the PPC will shift outwards and if technology of both goods depreciate then the PPC will shift inwards (same as in case of endowment of resources).
Thus, the correct option is 3.
Hope this clears your doubt, in case you still face any problem, feel free to ask!
We can understand this by comparing the effect of change in endowment of resources on PPC and the effect of change in technology of capital and consumer goods on PPC.
We know that when the endowment of resources increase, the PPC shifts rightward as now the country has more resources to produce more output. While on the other hand, if endowment of resources decrease due to say natural calamities, then the PPC shifts leftwards. This we can show in the below diagram:
Now, we know that when the technology of say capital goods change, the PPC pivots outwards or inwards with the same vertical intercept. This is because with appreciation (depreciation) in technology, the country can now produce more (less) of capital good. While on the other hand, the production/output of consumer goods remain same. This can be shown as:
In contrast to this, if there is a change in technology used in producing consumer goods only then the PPC pivots with the same horizontal intercept. This is because now the country can produce more (or less) of consumer goods with an appreciation (or depreciation) of technology respectively, with the same level of capital goods.
Now, it is quite obvious that if we merge the two cases, that is, let's suppose now, both the technology of capital as well as consumer goods change together, then both the intercepts will change, and this will lead to a shift in the PPC. For example, if the technology for both the goods appreciate, the PPC will shift outwards and if technology of both goods depreciate then the PPC will shift inwards (same as in case of endowment of resources).
Thus, the correct option is 3.
Hope this clears your doubt, in case you still face any problem, feel free to ask!