Question

The production possibilities frontier curves show the concepts of scarcity, choice, opportunity cost, efficiency and economic growth. Discuss with examples.

Answer 1

PPC shows the trade offs that are associated in allocating the scare resources in the economy in producing two goods.The PPC shows the concepts of scarcity,opportunity cost,efficiency , inefficiency ,economic growth.For eg if John is a carpenter and wants to produce two goods ie tables and book shelves with given resources.The shape of the PPC shows whether there is increasing or constant opportunity cost.When faced with the possibility of producing two goods with the given resources , the PPC shows scarcity and opportunity cost.Points on the interior of PPC shows inefficiency or underutilization of resources,Points on the PPC are efficient and points beyond PPC shows impossible or unatainable.The opportunty cost of moving from one combination to another is shown by how much of one good is given up to get more of the other good because resources are scarce.The bowed out shape of PPC shows increasing opportunity cost of production.When the PPC shift outward it represents economic growth due to technological development .