Question

Explain basic problems of the economy with the help of production possibility curve.

Answer 1

The Problem of choice between relatively scarce commodities due to limited resources can be illustrated with the help of a geometric device, is known as the production possibility curve

Basic problems of the Economy:

1. The problem of choice:
   a. The problem of choice arises because of the given limited resources and unlimited wants.
   b. It may be related to the allocation of resources between people of different standards.
   c. Since PPC is the locus of the combination of the goods the problem of choice will not arise.
2. The Notion of scarcity:
   a. We can explain the notion of scarcity with the help of PPC.
   b. Every society possesses only a specific amount of resources, which can produce only a limited amount of output even with the help of best technology.
   c. The PPC reflects the constraints imposed by the element of economic scarcity.
3. Solution of central problems:
   a. The central problems of an economy can be explained with the help of PPC.
   b. The solution for what to produce involves the decision regarding the choice of location on the production possibility curves.
   c. A production combination represented by any point inside the PPC indicates that the economy is using inefficient methods of production and a combination of resources.