A production possibilities curve (PPC) illustrates the maximum feasible production levels of two goods or services given available resources and technology. When a natural disaster creates a scarcity of a key resource needed to produce a product, the PPC is affected in the following ways:
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Outward Shift towards Origin: The PPC will shift inward (toward the origin of the graph) for the good that utilizes the scarce resource. This indicates a decrease in the potential production capacity of that good due to reduced availability of the resources needed for its production.
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Decreased Production Capacity: The point at which the PPC touches the axes representing the two goods will move inward, reflecting a reduction in total production capabilities. For example, if a natural disaster affects the supply of steel, which is essential for car production, the economy's ability to produce cars would decline.
Why This Happens:
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Resource Scarcity: The key resource becomes less available due to the disaster. This could mean that the quantity of the resource is reduced or that it becomes too costly to utilize in production.
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Reallocation of Resources: Resources that are in scarcity will need to be allocated differently, potentially leading to a production trade-off where producers might prioritize one good over another.
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Changes in Input Efficiency: The disaster might not only reduce the availability of the resource but could also damage infrastructure and production capabilities, further lowering the effective production output of goods.
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Potential Sector Impact: If the impacted resource is vital for multiple products, then many sectors may be affected, creating a broader impact on the economy, thus demonstrating a widespread inward shift in the PPC.
In summary, the inward shift of the PPC after a natural disaster is a reflection of reduced production capacity due to scarcity, and it illustrates the limitations imposed on an economy's ability to produce goods and services when key resources are compromised.
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