a) Outline the assumptions on which the PPF model is based.

Expert Solution

A production possibility curve represents the production of two type of goods in an economy over a given period of time in various combinations

Its shape is generally bowed outwards

it follows the law of increasing opportunity cost

Opportunity cost is the ratio of what is being given up to the what is being gain

There are four main assumptions while outlining the production possibility Frontier and that are-

1.There should be only two goods- In practical it is not possible because in an economy it produces tens of thousands of goods but for the analysis and easy applicability it is used

2.Fixed resources- It also considers that the economy has always fixed quantity due to which there is scarcity problem and economy tries to come up with optimum outcome

3.Fix technology- It also works on the same concept as of resources

4.Technical efficiency- It means there is proper production and not wastage

Rahul Sunny answered 8 months ago

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