Question

State the assumptions made while determining the production possibility curve.

Answer 1

The production possibility curve is based on the following assumptions:

(i) The economy is producing only two goods.

(ii) The resources available with the economy are given and fixed.

(iii) Resources are not equally suitable for production of both the goods but can be transferred from production of one good to the other.

(iv) All the available resources are fully and efficiently employed (no wastage).

(v) Technology available with the economy is also given and constant.