Question

Which ideas of economics are captured by PPC?

By analyzing the PPC model, what are the lessons that countries can learn to increase their GDP?

Answer 1

Production possibilities curve is a locus of combination of all those production bundles of two goods that the economy can produce with all its resources utilised to their full extent and using their latest technology

there are several ideas captured by the production possibilities curve including the problem of scarcity of resources and the efficiency in production. All the possible combination of two goods represents the long-run potential of the economy. This is the case when all the resources are fully utilised so that unemployment remains hovering around its natural rate. it also indicates the increasing opportunity cost of producing one good in terms of the other when resources are not perfect substitutes for production. This forces the economy to make a choice between different production and consumption bundles.

countries can increase their GDP by first using all their resources to their maximum strength. this implies that there should be an allocation in which the resources are used the most efficiently. Also increase in technology, or through immigration can increase the production possibilities and shift the PPC outwards. Inefficiency will result in a production bundle inside the PPC. economy should therefore focus on how to continue to operate on the PPC and how to increase production to extend the PPC.