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Concept Of Production Possibility Curve

CONCEPT OF PRODUCTION POSSIBILITY CURVE

(I) MEANING It is a graphical representation of all the possible combinations of two goods that can be produced by optimum (fuller) utilization of available resources and given technology.
It gives us the maximum limit of goods & services that could be produced so, it is also known as Production Possibility Boundary or Production Possibility Frontier (PPF).
(II) SHAPE OF PPC
  • It is Downward Sloping from left to right; and
  • Concave to the point of origin.
(III) REASON OF CONCAVE SHAPE OF PPC
  • It is downward sloping because to produce more of one we have to sacrifice a few units of another. Because resources were already being fully utilized.
  • PPC is concave shaped due to increasing MRT i.e. to produce every additional unit of a commodity more and more units of another commodity are sacrificed.
  • {Reason of increasing MRT: Resources are not equally efficient.}
(IV) TABULAR REPRESENTATION
Production Possibilities Capital Goods

(in units)

Agricultural Goods

(in units)

MRT (Change in Capital Goods /Change in Agricultural Goods)
A 15 0
B 14 1 1:1
C 12 2 2:1
D 9 3 3:1
E 5 4 4:1
F 0 5 5:1
  • In given table, it is shown that for having Agricultural Goods we have to sacrifice some units of Capital Goods.
  • Initially when we move from combination A to B, to gain one unit of Agricultural Goods we have to sacrifice 1 unit of Capital Goods. Further, if we have to gain 1 more unit of Agricultural Goods then we will have to sacrifice 2, 3, 4 & 5 Units of Capital Goods respectively.
  • In schedule it is shown that for every additional unit of Agricultural Goods, Marginal Opportunity cost (in terms of loss of output of Capital Goods to gain of Agricultural Goods) tends to rise.

LETS Practice

1. PPC is concave shaped as production of one good can be increased only by increasing production of another good.
  1. True
  2. False

View answer

Answer: False

2. Marginal rate of transformation can be written as
  1. Gain-loss
  2. Loss ×Gain
  3. Loss/Gain
  4. Gain/Loss

View answer

Answer: c.Loss/Gain

3. ___________________ is a graphical representation of all the possible combination oftwo goods that can be produced by optimum utilization of available resources and given technology.?

View answer

Answer: Production possibility frontier/PPC

(I) MEANING It is a graphical representation of all the possible combinations of two goods that can be produced by optimum (fuller) utilization of available resources and given technology.
(II) SHIFTING OF PPC TO RIGHT PPC shifts to rightward because of the following reasons.

  • Growth of Resources
  • Improvement in technology
(III) DIAGRAM

4. Growth of resources leads to ______________shift of PPC.?

View answer

Answer: Rightward

 

5.___________________ is a graphical representation of all the possible combination of two goods that can be produced by optimum utilization of available resources and given technology.?

View answer

Answer: Production possibility frontier/PPC

 

6.A point outside the PPC indicates____________________?

View answer

Answer: Unattainable combination