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Economics and Natural Resource

An economy is faced by the exhaustion of an important natural resource at a time when it is introducing improved technology. Explain how these events will affect the economy’s production possibility curve (8 marks)? The production possibility curves is a hypothetical representation of the amount of two different goods that can be obtained by shifting resources from the production of one, to the production of the other. This essay will take into account the two factors, the depletion of the natural resource and the improvement in technology and further analyses what effect they will have on a country’s production possibility curve.

Initially, the exhaustion of an important natural resource, such as oil or natural gas will deplete supplies of the resource already available. Therefore, exhaustion should further lead to a reduction in the supply and production of goods and services, otherwise known as output. As a result, this should move the production possibility curve inwards as the country’s capabilities to produce goods has dramatically decreased due to the exhaustion of this vital natural resource. This is perfectly illustrated in the diagram below: Economics and Natural Resource By Hawthorns

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