on 8 th November 2016, the Prime Ministers of India Mr. Narendra Modi has announced that 500 and 1000 rs note are no longer acceptable in legal tender. Explain the concept used by Prime Minister and Explain its impact on Production Possibility Curve ?
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Hi Mate,
All the points on the PPC curve depict efficient outcomes i.e. we are producing exactly the amount which can be produced by the fixed number of resources, but that's an ideal case.
We, in India, are obviously inside the area of feasible but inefficient outcomes because its very difficult to have all the outcomes as efficient.
Two scenarios as always occur in economics -
In short run, since the society was depending on cash for a long time, their purchasing power decreases because of demonetization, so demand decreases. Industries which cannot change their supply immediately will have inelastic supply and some other will have a bit elastic relative to others.
In long run, however, the growth rate will increase because society will be moving towards a cashless society, which will lead to more buying, hence more production. The production will definitely increase in the long run.
Moreover, better technology can also come in the long run, positively reinforcing the effect to the above in long run.
Hope This Helps You......
All the points on the PPC curve depict efficient outcomes i.e. we are producing exactly the amount which can be produced by the fixed number of resources, but that's an ideal case.
We, in India, are obviously inside the area of feasible but inefficient outcomes because its very difficult to have all the outcomes as efficient.
Two scenarios as always occur in economics -
In short run, since the society was depending on cash for a long time, their purchasing power decreases because of demonetization, so demand decreases. Industries which cannot change their supply immediately will have inelastic supply and some other will have a bit elastic relative to others.
In long run, however, the growth rate will increase because society will be moving towards a cashless society, which will lead to more buying, hence more production. The production will definitely increase in the long run.
Moreover, better technology can also come in the long run, positively reinforcing the effect to the above in long run.
Hope This Helps You......
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