Question

please answer all in microsoft word

1.      PPF Model: Explain and apply the relationship between the production possibility frontier (PPF), scarcity, opportunity cost, choice, efficiency, inefficiency, growth, loss.

Answer 1

Production possibility curve can be defined as the line by joining the points of different combination of two goods which can be produced by using all available resources efficiently.

Opportunity cost can be defined as the production of output which is given up for producing some additional units of another output

So a point inside the PPF shows the inefficiency point, a point on the PPF shows the efficient utilization of the resources while the point outside the PPF shows the point which is unattainable with the given resources and technology.

An economy can grow either with the increase in resources or with technological advancement. So in both situation, the PPF of the economy shift outward.

The PPF is drawn under the assumption of the scarcity of resources. Since there is a scarcity of resources, so the problem of opportunity cost arises, as the economy produces the opportunity cost of the producing more unit of good A increases.

Since the resources are scarce, therefore the problem of choice arises for drawing PPF. If the production is taking place under the PPF, it shows inefficiency of using of the given resources and If the production is taking place along the PPF, it shows the efficiency of using of the given resources.

If either the technology or resources have increased, then PPF shifts outward, it is known as the growth.

If either the technology or resources have decreased, then PPF shifts inward, it is known as the loss.