Question

Draw a production possibility curve. What do the points inside and outside this curve indicate? Explain.

Answer 1

Production possibility curve shows all different attainable combinations of the production of two commodities that can be produced in an economy with given the resources and technology which are to be fully utilized. Therefore, any point inside the production possibility curve indicates under utilization of resources because the economy can produce more with the given resources and any point beyond the production possibility curve cannot be achieved because the economy does not have the required resources to produce such amount of ouput.