Question

Explain the concept of inefficiency in terms of a production possibilties curve.

Answer 1

Let's take the above Production Possibility frontier to understand inefficiency. According to the above graph, two products can be produced bread and butter. The economy can use different combinations to produce bread and butter like J, K, L, M, and N. All these points on the Ppf graph shows an efficient point of production because it uses all the resources in the economy.

On the other hand, point E is the inefficient point, at this point, the economy is producing 2 butter and 10 bread but it can produce 17 pieces of bread. The loss of 7 units of bread at point E is inefficiency. It's the production which can be increased without employing any other resources in the economy.

Conclusion: Inefficiency is a point in the PPF where the economy is not producing at its optimal and the products can be increased without increasing any more resources.