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    Production Possibility Curve

    Uploaded by

    Shivangi Patnaik

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    © All Rights Reserved
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    Production Possibility Curve

    Uploaded by

    Shivangi Patnaik
    2 views13 pages

    Original Title

    PPC

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    2 views13 pages

    Production Possibility Curve

    Uploaded by

    Shivangi Patnaik

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 13

    Production

    Possibility Curve
    MRT=Marginal Rate of
    Transformation
    Define Production Possibility Curve (PPC). Explain,
    why it is downward sloping from left to right?

    • It is a curve which shows various production possibilities with the help of


    given limited resources and technology. It is also known as Production
    Possibility Frontier and transformation curve.
    • It is downward sloping from left to right because in a situation of fuller
    utilisation of the given resources, production of both the goods cannot be
    increased together. More of good X can be produced only with less of
    good Y as resources are scarce.
    • Because of this inverse relationship between production of both the
    goods, PPC is downward sloping.
    What is opportunity cost? Explain with
    the help of a numerical example.
    • Opportunity cost for a commodity is the amount of other commodity
    that has been foregone in order to produce the first or in
    otherwords, it is the cost of the next best (second best) opportunity
    foregone.
    • For eample If Mr W has three jobs to select from. Job A is available
    at 6,000 per month, Job B with 7,000 per month and Job C with
    8,000 per month. If Mr W chooses Job C, then, in this case
    opportunity cost would be 7,000 per month.
    Why is a Production Possibility Curve
    (PPC) concave? Explain.
    • Production Possibility Curve (PPC) is concave to the origin
    because marginal opportunity cost of shifting resources from
    commodity Y to commodity X tends to rise. Marginal opportunity
    cost tends to rise because the factors of production are not perfect
    substitute of each other. So when one factor is shifted from the
    production of one good to another, then its productivity falls,
    causing marginal opportunity cost to rise.
    How does Production Possibility Curve (PPC) is
    affected by unemployment in the economy?
    Explain.
    • Production Possibility Curve (PPC) will not shift due to
    unemployment in an economy. Due to unemployment in the
    economy, labour is under utilised (or less than fully employed). As a
    result, actual ouput is less than the potential output. Economy
    operates from a point below PPC.
    Production in an economy is below its potential due to unemployment.
    Government starts employment generation schemes. Explain its effect using
    Production Possibility Curve.

    • When the economy is below its potential due to unemployment the


    economy operates inside the PPC. When the government starts
    employment generation scheme, it enables the economy to utilise
    its existing resources in an optimum manner. The idle resources will
    now get utilised and the economy functions at its maximum
    capacity and moves from inside the PPC to points on the PPC.
    • Thus, economy moves from point ‘a’ inside the PPC to any point on
    PPC as shown in the diagram.
    With reference to the previous
    slide

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