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Define Production Possibility Curve and State Its Properties

The Production Possibility Curve (PPC) illustrates the maximum combinations of two goods that can be produced with given resources and technology, characterized by being downward sloping and concave to the origin. It is based on assumptions of fixed resources, unchanged technology, and efficient resource utilization. Unemployment does not shift the PPC but indicates underutilization of resources, while reducing unemployment allows the economy to achieve full production potential.

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51 views3 pages

Define Production Possibility Curve and State Its Properties

The Production Possibility Curve (PPC) illustrates the maximum combinations of two goods that can be produced with given resources and technology, characterized by being downward sloping and concave to the origin. It is based on assumptions of fixed resources, unchanged technology, and efficient resource utilization. Unemployment does not shift the PPC but indicates underutilization of resources, while reducing unemployment allows the economy to achieve full production potential.

Uploaded by

sushil chhetri
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1. Define Production Possibility Curve and state its properties.

Answer: Production possibility curve is a curve which depicts all possible


combinations of two goods which can be produced with given resources and
technology in an economy. Properties of Production Possibility Curve
a. PPC is downward sloping: The downward slope of PPC means if the
country wants to produce more of one good, it has to produce less
quantity of the other goods.

b. PPC is concave to the point of origin: Concave shape of PPC implies


that the slope of PPC increases. Slope of PPC is defined as the quantity
of goods Y given up in exchange for additional unit of goods X.

ΔY Amount ofGood Ylost


[Slope of Production Possibility Curve] = =
ΔX Amount ofGood Xgained
[Slope of PPC] = MRT = [Marginal Opportunity Cost]

2. State any three assumptions on which a production possibilities curve is


based.
Answer: The concept of PP curve is based on the following assumptions:

a. First, the amount of resources in the economy is fixed.

b. Second, the technology is given and unchanged.

c. Third, the resources are efficient and fully employed.

3. Massive unemployment will shift PPC to the left. Defend or refute. [3-4 Marks]
Answer: The given statement is refuted. Massive unemployment does not
decrease the capacity of economy to produce. So, there will be no shift of
PPC. However, due to unutilisation of human resources, economy will operate
at some point inside PPC as shown in the adjacent figure at point U.

4. Unemployment is reduced due to the measures taken by the government.


State its economic value in the context of production possibilities frontier. [1
Mark]
Answer: When unemployment is reduced due to the measures taken by the
government, the economy will be able to realize its production potential (Full
employment) level.
Value: Efficient utilization of resources.
5. Why is production possibility curve also called opportunity cost curve? [3
Marks]
Answer:
a. Production possibility curve is a curve which depicts all possible
combinations of two goods which can be produced with given
resources and technology in an economy.
b. PPC is also called opportunity cost curve because each and every point
on PPC measures the opportunity cost of one commodity in terms of
sacrificing other commodity.
c. The rate of this sacrificed commodity is called the Marginal Opportunity
Cost of the expanding good.

6. Giving reason comment on the shape of Production Possibilities curve based


on the following schedule. [3 Marks]

Answer:

The Production Possibility Curve is downward sloping straight line because


of constant marginal opportunity cost.

7. Question 12. Giving reason comment on the shape of Production Possibilities


Curve based on the following schedule. [3 Marks]

Answer:
The Production Possibility Curve is downward sloping straight line because of
constant marginal opportunity cost.

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