Assuming that no resource is equally efficient in production of all goods, name the curve which shows production potential of the economy. Explain, giving reasons, its properties.

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Solution

Assuming that no resource is equally efficient in production of all goods, the curve which shows the production potential of the economy is 'Production Possibility Curve'.

The following are the properties of PPC.
(i) Concave to origin: PPC curve is concave to the origin. This is because slope of PPC i.e. marginal rate of transformation (MRT) tends to rise as it moves downward from left to right.
(ii) Downward sloping: PPC curve is downward sloping. This is because as more of Good $1$ is produced, more of Good $2$ is to be sacrificed.
(iii) Increasing marginal rate of transformation: Slope of PPC i.e. marginal rate of transformation (MRT) tends to rise as it moves downward from left to right.
(iv) Optimum utilisation of resources: The points that lie on a PPC are associated with full employment of resources and efficient utilisation of available technology.

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Similar questions

State any one assumption for the construction of the curve that shows the possibilities of potential production of two goods in an economy.

Name the situation reflected by an economy which produces a combination of goods that lie below its production possibility curve.

Which of the following is an assumption of Production Possibility Frontier?
(i) Resources are not fully employed.
(ii) Resources are not equally efficient for production of the two goods.
(iii) Resources are not efficiently employed.
(iv) Resources available are not fixed.

Q. Use the figure to answer question.
Which point on the Production Possibilities Curve show full and efficient use of resources?

Q. An economy which uses all its resources on production of _____________ , cannot provide for future growth prospects.

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