Question

7. Shifts in production possibilities Sugpooe the United kingdom produces two types of gooda: agricultural and capitail. The following disgram shows its current production possibiis rontier for whest, an agricuitural good, and construction vehicdes, a capital good. orag the produsction pessiblitles frenter (P9E) on the graph to show the efects of a breakout of avan fhu that seskens mitions of orkers Note: Select either end of the curve on the graph t snap inte posaition, soe if you try to move a point and it snaps tback to its original position, just drag it a little farther o make the endooints appear. Then drag one or both endpoints to the desired position 400 0 WHEAT Msons of bushels

Answer 1

The PPF shows the combinations of goods which a country can produce with the given level of resources. When resource level increases, production capacity increases, and the PPF shifts out. On the other hand, when the resource level decreases, production capacity decreases, and the PPF shifts in. In this case, when millions of workers fall sick, there will be a decrease in labor supply and production capacity would fall. So, the PPF will shift inside. It is shown in the figure: