What does an outward shift of the production possibilities curve represent?

An outward shift of the production possibilities curve (PPC) signifies economic growth. The PPC illustrates the maximum potential output of an economy, given its resources and technology. When the curve shifts outward, it indicates that the economy can produce more of both goods represented on the axes, reflecting an increase in productive capacity. This growth can be attributed to factors such as improvements in technology, an increase in the workforce, or better utilization of resources.

In contrast, an inward shift of the PPC would denote economic decline, showing a decrease in the economy's ability to produce goods and services. Increased inefficiency would not lead to an outward shift; rather, it could keep the economy along the PPC at a less optimal point. Lastly, higher resource costs might impact the quantity of goods produced, but they would not inherently shift the PPC outward, as they do not change the underlying capacity or resources available within the economy. Thus, the outward shift is clearly indicative of economic growth.