Suppose that there is a negative productivity shock to all goods and services. This can be represented on the Production Possibility Frontier (PPF) as:
A flattening of the frontier
A convex curvature of the frontier
A shift outwards of the frontier
A shift inwards of the frontier
No change in the frontier.
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A negative shock to goods and services is represented by the Production Possibility Frontier (PPF) as A shift inwards of the frontier.
For example, with the use of a production function showing how much output can be produced with a given amount of capital and labor. We can showcase this phenomenon of negative shock. A PPF with the name X1Y1 is the maximum production of a firm due to its current available resources. Unfortunately, this firm experiences a negative shock to goods and services it can produce. For this example, the negative shock is a supply shock. Supply shocks include changes in energy supplies, technological breakthroughs, and management practices. This supply shock results in a new PPF named X2Y2 which indicates an inward or leftward shift in from the original PPF of X1Y1. Thus, the firms new PPF shows a reduction in production for the firm in comparison to that of the originally graphed PPF.
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