Question

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

​i) Unemployed resources

​ii) Scarcity

​iii) Production efficiency

​iv) Opportunity cost

​v) Economic growth

Answer 1

Answer. PPC shows the graphical representation of combination of two goods that can be produced in the economy given the resources and technology.

1. When an economy is producing inside the PPC, say point A, that means it is not using all its resources, so there are some resources that are unemployed.

2. Given the limited resources, there can only be limited goods produced in an economy. So, if the country wants to produce more of one good, it has to produce less of other goods which indicate scarcity of resources. If country wants to increase production of good x, it has to reduce production of good y, i.e, move from B to C point.

3. If the economy operates at any point on the PPC, like D, that means production in the economy is efficient.

4. Opportunity cost is the slope of PPC, that is, it explains the number of goods sacrificed to produce one more unit of the other good. If country moves from point B to C, opportunity cost = units of good y sacrificed / units of good x gained.

5. Anything, that shifts the PPC of the economy rightward indicates economic growth. For example, improvement in technology or skill of workers.