question_answer

Explain the central problem of 'What is produced and in what quantities'.

Or

In what circumstances may the production possibility frontier shift away from the origin? Explain.

 

Answer:

It is the problem of choosing which goods and services should be produced and in what quantities. The economy cannot have more of everything with available resources at the same time. Thus, society has to decide between consumer goods and producer goods etc. Since resources are limited, all goods and services desired cannot be produced at the same time. So, the society has to decide which goods are to be produced and also the quantities in which they should be produce. Hence, the problem is related with two aspect i.e., (i) which commodity should be produced? (ii) In how much Quantity?

Or

Shifting away of PPC from the origin means the right?ward shift of production possibility frontier. It takes place because of two main reasons.

(i) When resources of an economy increase ? It may be in the form of discovery of new natural resources, availability of new machinery through saving and investment and increase in skilled and unskilled labour through population growth.

(ii) When there is an improvement in technology ? It happens as a result of the work of a scientist, engineers and inventors over a long period of time. In this case, more of the two goods can be produced with the given amount of resources, causing shift of PPC to the right. Rightward shifting can be shown through the following: