Question

The Production Possibilities Curve (PPC) is a model widely used in economics to explain various economic problems and theories especially the trade-offs associated with allocating resources between the productions of two goods. The PPC can be used to illustrate the opportunity cost, efficiency, inefficiency, economic growth, and contractions. This concept is also helpful to explain the central problems of what, how and for whom to produce.

China is one of the fastest growing economy in the world. The country is blessed with large number of human resources and capital. China produces variety of consumer goods and export it to different part of the world. Let us suppose that China produces two commodities, cotton and wheat. We suppose that the productive resources are being fully utilized and there is no change in technology. The following table gives the various production possibilities. The Chinese government has made innovation a top priority in its economic planning through a number of high-profile initiatives, such as “Made in China 2025,” a plan announced in 2015 to upgrade and modernize China’s manufacturing in 10 key sectors through extensive government assistance in order to make China a major global player in these sectors. However, such measures have increasingly raised concerns that China intends to use industrial policies to decrease the country’s reliance on foreign technology (including by locking out foreign firms in China) and eventually dominate global markets.

Production Cotton(in 000 quintals) Wheat (in 000 quintals) Possibilities

A 0 15 B 1 14 C 2 12 D39 E45 F50

Questions: [ Student has to write answer at least 125 words for each sub-question]

i) Illustrate the PPC of China in a graph based on above information.

ii) Explain how the concept of PPC is useful for the allocation of resources in an economy like China.

iii) How the concept of PPC is useful to address the problem of ‘how to produce” in a country like China?

iv) Suppose China want to increase the production of wheat from 5000 quintals to 12000 quintals.

What is the opportunity cost of this decision?

v) Discuss the strategies that Government of China has formulated for faster economic growth.

Answer 1

Question-1

Possibloties	Cotton('000s) qunitel	Wheat('000s) quintel
A	0	15
B	1	14
C	2	12
D	3	9
E	4	5
F	5	0

Production possibility frontier

Question-2

Due to limited resources a country , it is required that the production of any one commodity will only increase if the production of another commodity decreases.So Production possibility Frontier shows different combination of two goods at full employment of resources, which help to select a combination of two goods.

Question-3

How the goods are to be produced means which methods or techniques should be employed for the production of various goods. In other words, what resource combination be used for the production of goods so as to maximise the output or to minimise the cost. A factor would be used for the production of a product for which it is more efficient. Then only full employment of resources happens and lies on Production possibility frontier.

For the production of various goods, efficient methods are not used or if the resources are not employed in their efficient uses, the economy will not be operating at a point on the production possibility curve, instead it will be operating at a point below the production possibility curve operating at full employment.

Question-4

Cost of sacrifice (cotton) =4000-2000=2000q.

Cost of Gain(wheat) =12000-5000=7000q.

=0.28