Question

What is the problem we face in economics? Use the PPC to illustrate.

Answer 1

ANSWER
Production possibility curve shows all different attainable combinations of the production of two commodities that can be produced in an economy with given the resources and technology which are to be fully utilised.

'Scarcity' is revealed by the fact that any movement along the PPC (like moving from point D to F), So if the production of good-x is increased from R to S then the production of good-y decreases from C to E which indicates that the resources are limited or scarce because if production of one good increases then the production of the other decreases.

The fundamental economic problem is the issue of scarcity and how best to produce and distribute these scare resources.
Scarcity means there is a finite supply of goods and raw materials.
Finite resources mean they are limited and can run out.
Unlimited wants mean that there is no end to the quantity of goods and services people would like to consume.
Because of unlimited wants – People would like to consume more than it is possible to produce (scarcity)

The scarcity along with alternative uses of available resources and unlimited human wants, creates the Economics problem of What to produce, How to produce and For whom to produce.

So it creates a trade off between two possible commodities which can be produced with given resources and technology.

In order to produce 1 more unit of commodity on X axis more and more units of commodity on Y axis has to be substituted.

Marginal opportunity cost increases and gives a concave shape to PPC because factors of production are not equally efficient in the production of both the commodities.