IB Mock Review: Q3

Using the PPC, explain the impact that a discovery of vast oil reserves would have on an economy.

A Production Possibility Curve (PCC) shows the maximum combination of goods or services that can be produced in an economy in a given time period, if all the resources in the economy are being used fully and efficiently. The PPC curve is based on the fact that there are unlimited wants and needs but limited resources or factors of production. FOPs are the resources employed to produce goods and services. The PPC curve shows the maximum output of the country. The country’s actual output is the production of goods and services in an economy achieved in a given time period, which would be A. When the country increased in FOPs from A to B, the potential output increased. Potential output is the possible production that would be achieved in an economy if all available factors were employed. This increase in resources leads to potential growth which occurs when the quantity and/or quality of factors of production within an economy is increased. It is represented by an outward shift of PPC1 to PPC2. Angola is a country that just experienced this potential growth in the economy due to new-found oil. The GDP increased by about 400% as revenue from countries investing in Angola and trade increases. According to the new PPC, the Angola’s actual output has increased which allows them to produce more units of each good or service.