Question

What factors influence the trade-offs illustrated it in the production possibility frontier? How can environmental policy affects these trade-offs?

Answer 1

The trade-offs along PPF can be influenced with the ecological facts and technological capacity of the economy. The extraction and processing of raw material have always impact on the environment. It causes water shortages, soil degradation, and damage to ecosystem functions, biodiversity loss, and global warming exacerbation. Thus these adverse impacts on the environment arise due to resource inflow from the natural world into the economy and the residuals release during the process of production and consumption. The advancements in technology that reduce inputs or residuals per unit output would cause an upward shift in the PPF, indicating more goods are being produced per unit of environmental quality. The recycling and re-using technologies can also be used.

Public policies can also affect tradeoffs by providing incentives to conduct research and adopt environmental technologies that decrease the environmental impacts per unit of output. Also with improvement in ecology the trade-offs can be reduced.