Question

Using the production possibility frontier graph and explains the following concepts.

Unemployed resources

Scarcity

Production efficiency

Opportunity cost

Economic growth

Answer 1

The PPC is also called production possibility frontier, production possibility boundary and production transformation curve. The PPC curve shows the various combinations of two commodities that can be produced by an economy with the given resources and given technology.

Graph;

Explanation with example of goods ie. Gun and Butter

Suppose, we are on the point D of the left hand diagram. If we now try to move to the right, we are in fact throwing away guns and taking butter instead. There are some specialised input which are meant for gun factory will be useless in the butter factory. So, gradually more and more inputs will become unemployed. Hence, the sacrifice of the same number of guns will yield less and less amount of butter as we move to the right and this will result in a concave curve. In other words, the Marginal Rate of Transformation will be falling.

Scarcity is when PPC curve slopes downwards form left to right. Because when the production of one commodity is increased the production of another commodity will be foregone.

The slope of the PPC here at any given point is Marginal rate of transformation (MRT). The slope defines the rate at which production of one good can be redirected into production of other. It is nothing but opportunity cost.

Shift of the PPC curve is nothing but economic growth. Ie (+10 towards D)

Point which lies below the PPC curve is possible combination. But if the economy is working below the PPC curve that indicates the unused/ unemployed resources ‘or’ unemployment.