Question

Draw a production possibility curve. What does a point below this curve indicate?

Answer 1

Production possibility curve graphically represents the various combinations of two goods which can be produced with a given amount of resources assuming that the resources are fully employed and efficiently used.

In the diagram, a production possibility curve between cloth and wheat is drawn. It is concave to the origin. Points A, B and C which lie on the PPC represent the situation when the given resources are fully employed.

Any point below this curve indicates that the resources are not fully and efficiently used. Therefore, at point H, resources are under-employed.