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One interesting way that PPF's are used is to demonstrate the trade-offs between producing consumer goods and capital goods. Producing more capital goods provides for
One interesting way that PPF's are used is to demonstrate the trade-offs between producing consumer goods and capital goods. Producing more capital goods provides for greater economic growth in the future and thus allows the PPF to shift out faster than if an economy chooses to produce more consumer goods. Then there were would be slower or non-existent economic growth. Taking this one step further, we can compare the PPF of a richer country to that of a poorer country. The poorer country's PPF is going to be much closer to the origin than the richer country. Additionally, the richer country, with significantly more available production opportunities, can choose to produce more capital goods thus allowing it to become even richer. (Using the terms "rich" and "poor" in this context refers to the value of its productive capacity) The poor country, with far fewer production opportunities, has to use much more of its resources providing the basic necessities of life for its citizens thus not enabling it to produce much capital and therefore impeding its ability to grow. How can we use this framework to think about and analyze income inequality within a country, such as the USA, rather than across countries? Approximately 150 word minimum and 450 word maximum
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