Q. 55.0( 1 Vote )

State and discuss

Answer :


The society has to decide how to allocate its scarce resources to the production of different goods and services. This is depicted by Production Possibility Frontier (PPF). PPF depicts the various combinations of two commodities that the economy can produce using the full and efficient utilisation of the given resources and the given state of technology. It is the graphical representation of production possibility set which depicts the alternative production possibilities of the economy. Since PPC shows the rate of transformation of one good to another, it is called the transformation curve.


The slope of PPF is opportunity cost/MRT. MRT examines the trade-off between the allocation of resources between the production of goods. It is the rate at which one good must be sacrificed to produce an extra unit of another good. PPF can shift either towards the right or towards the left when there is a change in the available resources or technology with respect to both the goods. The main reasons for the rightward shift in PPF are:


Improvement in technology: When there are advancement and improvement in technology used in the production of both the goods, the production capacity of the economy rises. This will shift the PPF to the right.


Increase in the availability of resources: When the stock of resources in the economy- both natural resources and human resources- increases with respect to both the goods, the production potential of the economy increases. This will shift the PPF to the right.



OR


The society has to decide how to allocate its scarce resources to the production of different goods and services. This is depicted by Production Possibility Frontier (PPF). PPF depicts the various combinations of two commodities that the economy can produce using the full and efficient utilisation of the given resources and the given state of technology. It is the graphical representation of production possibility set which depicts the alternative production possibilities of the economy. Since PPC shows the rate of transformation of one good to another, it is called the transformation curve.


The slope of PPF is opportunity cost/MRT. MRT examines the trade-off between the allocation of resources between the production of goods. It is the rate at which one good must be sacrificed to produce an extra unit of another good. MRT determines the shape of the PPC. PPC will be a straight line when the MRT is constant- when the same amount of commodity is sacrificed to gain an additional unit of another commodity. It occurs when all the resources are equally efficient in the production of all the goods.




In the schedule, 25 units of gun are sacrificed for increasing the production of butter by 10 units each. Here the MRT is constant making the PPC a straight line.


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