question_answer

Assuming that no resource is equally efficient in production of all goods, name the curve which shows production potential of the economy. Explain, giving reasons, its properties.

Answer:

The curve which shows the production potential of the economy, assuming that no resource is equally efficient in production of all goods is ?Production Possibility Curve (PP Curve)?.
Production possibly curve: It is a curve which depict all possible combinations of two goods which an economy can produce with available technology and with full and efficient use of its given resources.
Production possibilities (combination)	Wheat (lakh tonnes)	Tanks (thousands)
A	0	15
B	1	14
C	2	12
D	3	9
E	4	5
F	5	0
Properties of PP Curve:
(a) Downward sloping curve from left to right: PP Curve is downward sloping from left to right because in a situation of full employment of resources, production of one good can be increased only after sacrificing some quantity of the other good.
(b) PP curve is concave to the origin: The shape of PP Curve is concave to the origin because of increasing marginal opportunity cost.
(c) Optimum utilisation of resources: When economy is producing on PP Curve, every point on it (A, B, C, D, E, F) reflects situation of full and efficient employment of resources i.e., optimum utilisation of resources.