Question

ECONOMICS

QUESTION ONE [25]

“The production possibility frontier measures the efficiency in which two commodities can be produced together, helping managers and leaders to decide what mix of commodities is most beneficial.” In terms of the above statement, apply the basic economic model of the production possibility frontier, (PPF), to your country or a country of your choice, indicating how it illustrates the fundamental economic problem of scarcity, choice and opportunity cost. Include in your answer a discussion of the efficient, inefficient, attainable and unattainable points on the PPF.

Answer 1

Production possibility curve- It is a curve that represent different combination of two goods that can be produced with the given resources and technology.

Assume that in a country two goods wheat and cloth can be produced with given resources. If all resources are used in the production of wheat than 100 lakh ton wheat will be produced and If all resources are used in the production of cloth than 4 bales cloth will be produced. If the economy produce both the goods then with the given resources by making efficient use following combinations can be produced.

It also deals with scarcity, efficiency and opportunity cost

Resources are scarce. If producer want to produce one more unit of cloth , he needs to reduce the production of wheat , because resources are limited and resources will be shift from wheat to cloth in increasing amount.

Goods	A	B	C	D	E
Wheat (lakh ton)	100	90	70	40	0
Cloth ( 000 bales)	0	1	2	3	4

efficient production - Efficient production will take place at production possibility curve because all resources are fully  utilized according to their capacity.

Inefficient - Inside portion of PPF is inefficient because resources are not properly utilized .some of the resources are idle.

Attainable- On the production possibility curve whatever is produced is attainable because resources are available.

Non attainable- Outside the PPF ,non attainable situation arise because resources cannot be increased as they are scarce. Non attainable point is e as it is outside the PPF curve