Eco201

The European Union and the Production Possibilities Curve

TUI University

Eco 201

Module 1, Case

Dr. Powers

Review the Case in Point essay “The European Union and the Production Possibilities Curve,” in section 4 of Chapter 2 in the Principles of Microeconomics online text listed above to address the following two questions. 

1. Does a reduction in trade barriers cause a country to move closer to its production possibilities curve or does it cause the production possibilities curve to shift outward? 

I believe it is possible for a country to shift closer to its curve and it is possible for the curve to shift outward. There could be many things that affect what is possible to produce and what is produced. In the case of the European Union and the reduction in trade barriers I believe that less trade barriers will cause the production curve to move outward and the country should move closer to the production curve. A possibility curve cannot shift outward without increasing recourses. With trade barriers relaxed it is possible to receive goods and services from other countries that could increase goods and services. For instance, if one country was able to export a natural recourse to another without restrictions, the receiving country could in-tern sell a finished product for a less amount. That would put more money in the consumer’s pocket with which to spend elsewhere.

2. What can be said about an economy that is operating inside the production possibilities frontier?

A country that is operating inside of the production possibilities frontier would not be doing well; it would be economically inefficient. This could trickle to every aspect of life for the people.

The inefficiency could be not utilizing labor and human capital. It could also mean that there would be recourses that are not being used such as factories, farmland, machinery, natural recourses etc. Another thing that could be said is that there could...