An outward shift of the production possibility curve shows that?

Analyze the question: It asks what an outward shift of the Production Possibility Curve (PPC) means.

Concept: The PPC (also called the Production Possibility Frontier) shows the maximum combinations of two goods an economy can produce when all its resources are fully and efficiently used.

• A point on the curve means resources are fully employed.
• A point inside the curve means resources are under-utilized or unemployed.
• A shift of the whole curve outward (to the right) means the economy can now produce more of both goods than before.

Causes of an outward shift:

• Increase in the quantity or quality of resources (labour, capital, land)
• Technological progress
• Better education and training (human capital)
• Discovery of new natural resources (e.g. new oil wells)

Step-by-step evaluation of the options:

• A. Production is shifting to the left: Wrong. A leftward shift would mean a decline in productive capacity, which is the opposite of an outward shift.
• B. Resources are under-utilized: Wrong. Under-utilization is shown by a point inside the curve, not by the curve moving outward.
• C. Economic growth has taken place: Correct. Economic growth is an increase in the productive capacity of an economy, and this is exactly what an outward PPC shift represents.
• D. Factors of production are moving outward: Wrong. This is not an economic concept. Factors of production may increase in quantity or quality, but they do not "move outward."

Exam tip: Remember the direction rules:

• Outward/right shift means economic growth
• Inward/left shift means economic decline
• Point inside the curve means unemployment or inefficiency
• Point on the curve means full employment and efficiency
• Point outside the curve means unattainable with current resources