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!
see my post above.
You're on the right track! Increasing or decreasing the quantity of capital goods produced in the current period can indeed affect next period's production possibilities curve.
To understand why, let's first define the production possibilities curve (PPC). The PPC is a graphical representation of the maximum quantity of goods and services that can be produced given the available resources and technology. It illustrates the trade-off between producing different combinations of goods within an economy.
When more capital goods are produced in the current period, it means that resources (such as labor, raw materials, etc.) are being allocated towards producing these capital goods instead of consumer goods. Capital goods are goods that are used to produce other goods, such as machinery or equipment. By increasing the production of capital goods, you are investing in the future capacity of the economy to produce more goods and services.
In the short term, however, this increase in the production of capital goods means there are fewer resources available for the production of consumer goods. As a result, the quantity of consumer goods produced in the current period may decrease. So, your intuition that producing more goods this period will result in fewer goods next period is correct.
Next period's PPC will be affected by this shift in resources. Since more resources were allocated to producing capital goods, there will be an increase in the economy's capacity to produce goods and services in the future. This means the PPC will shift outward or to the right, showing an expansion of production possibilities in the future.
Similarly, when fewer capital goods are produced in the current period, more resources are available for the production of consumer goods. This can lead to an increase in the quantity of consumer goods produced in the current period. As a result, next period's PPC might shift inward or to the left, indicating a decrease in the economy's future production possibilities.
In summary, increasing the quantity of capital goods produced in the current period may reduce the quantity of consumer goods produced in the current period, but it expands the economy's future production possibilities. Conversely, decreasing the quantity of capital goods produced increases the quantity of consumer goods in the current period but restricts the economy's future production possibilities.