Answer:

Diagram: A PPC diagram should be included here. The PPC should be shown shifting outwards. Label the axes (Goods A and Goods B) and clearly indicate the original and new PPCs.

Impact on Opportunity Cost: An outward shift in the PPC means the economy can produce more of both goods A and B. The opportunity cost of producing a particular good remains the same in absolute terms (the amount of the other good forgone). However, the opportunity cost in terms of the *relative* amount of the other good forgone *decreases*. This is because the economy is now more productive and can produce more of both goods with the same resources. The slope of the PPC becomes less steep.

Potential Benefits:

• Increased Overall Output: The economy can produce more of both goods, leading to greater wealth.
• Improved Efficiency: Investment in capital goods often leads to greater efficiency in production.
• Higher Potential for Economic Growth: Increased productivity is a key driver of long-term economic growth.

Potential Drawbacks:

• Resource Allocation Issues: The investment may not be optimally allocated, leading to inefficient use of resources.
• Potential for Inflation: If the increased investment is not matched by increased demand, it could lead to inflation.
• Environmental Concerns: Increased production can have negative environmental consequences.

In conclusion, while an outward shift in the PPC due to increased capital investment generally represents a positive development, it's important to consider the potential drawbacks and ensure that resources are allocated efficiently to maximize the benefits.

Answer:

Possible Causes of PPC Shift leading to Unemployment: A shift in the PPC that leads to increased unemployment is likely to be an inward shift, indicating a decrease in productive capacity. Possible causes include:

• Decline in Resources: A decrease in the availability of key resources (e.g., a natural disaster reducing agricultural output, a decline in the labour force due to emigration).
• Technological Regression: A decline in technological innovation or a failure to adopt new technologies can reduce productivity and shift the PPC inwards.
• Reduced Investment: A decrease in investment in capital goods can lead to a decline in productivity and a shift in the PPC.
• Government Policy Changes: Policies that restrict economic activity (e.g., high taxes, excessive regulation) can reduce productivity and lead to unemployment.

Impact on the Economy:

Short-Term Consequences:

• Increased Unemployment: The most immediate consequence is a rise in unemployment, leading to hardship for individuals and families.
• Reduced Aggregate Demand: Higher unemployment reduces incomes and consumer spending, leading to a decrease in aggregate demand.
• Potential for Deflation: Reduced demand can put downward pressure on prices, potentially leading to deflation.

Long-Term Consequences:

• Lower Economic Growth: A decline in productive capacity can lead to slower economic growth in the long run.
• Reduced Living Standards: Lower incomes and reduced opportunities can lead to a decline in living standards.
• Structural Unemployment: If the decline in productivity is due to technological changes, it can lead to structural unemployment, where workers lack the skills needed for new jobs.
• Increased Inequality: Unemployment can exacerbate income inequality.

In conclusion, an inward shift in the PPC resulting in increased unemployment has serious short-term and long-term consequences for the economy. Addressing this requires policies aimed at restoring productive capacity, such as investment in education, infrastructure, and technological innovation. Furthermore, measures to mitigate the social and economic impacts of unemployment are crucial.

The Production Possibility Curve (PPC) is a graphical representation of the maximum possible combinations of two goods or services that an economy can produce, given its available resources and technology. It illustrates the trade-offs inherent in economic decision-making. Each point on the curve represents an efficient allocation of resources; points inside the curve represent inefficient allocation, and points outside the curve are currently unattainable with the available resources.

Key Assumptions:

• Fixed Resources: The PPC assumes a fixed quantity of resources (land, labour, capital, entrepreneurship) are available.
• Fixed Technology: The technology used to produce goods and services is assumed to be constant.
• Full Employment: The PPC assumes that all available resources are fully employed.
• Rational Decision-Making: Resources are allocated in the most efficient way to maximize output.

Shape and Interpretation: The PPC is typically bowed outwards (concave to the origin) due to the law of increasing opportunity cost. This means that as more of one good is produced, the opportunity cost of producing additional units of that good increases. This is because resources are not equally suited to the production of all goods. The shape reflects the increasing opportunity cost of switching resources from one activity to another.

Shifting Along the PPC:

• Movement along the curve represents an efficient reallocation of resources between the two goods. For example, shifting more resources to the production of computers means fewer resources are available for consumer goods.
• Outward shift of the PPC indicates economic growth, usually due to an increase in resources (e.g., population growth, discovery of new resources) or technological advancements. This allows the economy to produce more of both goods.
• Inward shift of the PPC indicates a decline in resources or a setback in technology.

Diagram: A standard PPC diagram would show two goods on the X and Y axes, with points plotted along a bowed-out curve. The axes would be labelled appropriately. Arrows would be used to illustrate movements along and shifts of the curve.