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Give reasons for the following statements: (i) A production Possibility Frontier is always a downward sloping concave curve. (ii) An efficient economy would always produce a combination of goods that lies on the given Production Possibility Fontier. (iii) Growth of an economy is represented in the form of a rightward shift of a ProductionPossibility Frontier. |
Answer» Solution : (i) A PPF slopes DOWNWARD to indicate if an economy chooses to produce more of one commodity, then it would have to reduce the production of another commodity. The concave shape of PPF is due to Increase in Marginal Opportunity Cost (ii) Any point on a GIVEN PPF presents aproduction possibilitywhere in all the available resources in an economy get fully utilised. Any combinationlocated below the given PPF shows an underutilization of available resources. LIKEWISE, any point to the right of the PPF is beyond the available resources. (iii) By economic GROWTH, we mean that an economy has developed GREATER capacity to producelarger quantity of goods by acquiring more resources. Graphically, this would be representedby an rightward shift of PPF. |
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