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Thinking like an Economist

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Please assist me with the following questions:

1. Could a nation's production possibilities curve shift outward? Explain what such a shift would mean, and discuss at least two events that might cause such a shift to occur.

2. By 1993, nations in the European Union (EU) had eliminated all barriers to the flow of goods, services, labor, and capital across their borders. Even such things as consumer protection laws and the types of plugs required to plug in appliances have been standardized to ensure that there will be no barriers to trade. How do you think this elimination of trade barriers affected EU output?

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Solution Preview

1. Could a nation's production possibilities curve shift outward? Explain what such a shift would mean, and discuss at least TWO events that might cause such a shift to occur.

Of course. Improvements in efficiency can shift the curve outward, as can a change in technology that allows for more efficient utilization of factor inputs. Basically, the PPC can shift either as a whole in response to increased productivity throughout the country (i.e. technological change), or it can shift in favor of one factor (increase in birth rates leading to more workers available). The shift thus could ...

Solution Summary

This solution explores both how a production possibilities curve could be shifted for a country, as well as the effects of trade barriers and their elimination for the EU.

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