Posted by Britt on .
How does increasing or decreasing the quantity of capital goods produced this period affect next period's production possibilities curve and why?
The only thing I can think of is that if more products are produced this period, less can be produced next period because their are less resources used and if less goods are produced this period, more can be produced next period because less resources have been used. So, if more goods are produced the production possibilities curve moves to the left anf if less goods are produced the curve moves to the right. I do not know why though...
Is this right? I am slightly confused with this whole concept...PLEASE HELP!
Hummmm. In a world of fixed, non-renewable (natural) resources, I would agree with your answer. However, I think you may have over-analyzed this problem/question. Further, your original question asked about capital goods.
In general, one makes capital goods today so that one can be more productive tomorrow. Increasing the quantity of capital goods should shift the PPF outward.
(Consider an example of a primative hunting society. With its current capital stock of spears only, the tribe can kill 100 deers per year. However, instead of hunting, some tribe members work on creating bows and arrows (creation of capital goods). How many deer can the tribe expect in the following period with bows and arrows?