Production Possibility Curve/frontier

Question 1

What is PPC?

Answer 1

It is a graphical representation of the alternative combinations of goods and services that an economy can produce based on limited resources.

Question 2

Mention the 4 key assumptions of PPC

Answer 2

1. Only 2 goods can be produced
2. Full employment of resources
3. Resources are fixed in Nature
4. Technology is fixed in nature

Question 3

What does point P (Inside the PPC) on the PPC Show/indicate?

Answer 3

There is under-utilization or lack of full employment of resources. Production is Inefficient

Question 4

What do points A, B, and C (on the PPC) on the PPC Show/indicate?

Answer 4

Efficient use of resources

Question 5

What does point Q (outside the PPC) on the PPC Show/indicate?

Answer 5

Resources cannot meet up with production. Production is unattainable

Question 6

List 5 uses of PPC

Answer 6

1. It helps us to see the maximum amount of goods and services that can be produced given limited resources.
2. It shows opportunity cost of producing one good over another.
3. It helps in decision making showing different combinations of goods and services
4. It is used to illustrate the trade off and opportunity cost in an economy
5. It helps us to explain how an economy grows
6. It helps us to know the level of unemployment of resources in the economy