1.4 Basic economic problem

Question 1

PPC, what is it, why is it used?

Answer 1

• Production Possibility Curve
• A model that demonstrates all the possible production choices the society makes between 2 goods and services, given the limited resources and unchanging technology and productivity
• It is important and used because it mainly demonstrates opportunity cost and scarcity, by showing that when you gain something, you must give something up

Question 2

What are the 5 assumptions PPC is based on?

Answer 2

• All resouces are being used only for the 2 goods and services
• the chosen product between/of the goods and services is the one most wanted by society
• All (factors of production) resouces are fully used and producing maximum amount
• technology and productivity do not change
• economy is efficient, meaning resources are used at the least costly manner