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Question

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.


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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Economics

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