Economics – The basic economic problem - Production possibility curve (PPC) diagrams | e-Consult

a) Explanation of Outward Shift:

The PPC shifts outwards because the country is able to utilize its resources more efficiently. Shifting from manufacturing to services often involves a reallocation of labour and capital towards the service sector. If the country has a surplus of labour and capital that were previously underutilized in manufacturing, these resources can now be employed in the service sector, leading to increased production of both goods and services. This represents an improvement in productivity and resource allocation.

b) Potential Consequences:

1. Higher National Income: Increased production of both goods and services will lead to a higher national income. This is because more goods and services are being produced and sold.
2. Changes in Employment Patterns: There will be a shift in employment from the manufacturing sector to the service sector. This could lead to job losses in manufacturing and job creation in services. The government may need to implement policies to support workers who lose their jobs in manufacturing.