7. How is production possibility frontier affected when resources are inefficiently employed in an
economy? Explain with the help of a diagram.
Answers
Let's first understand what a production possibility frontier is.
A PPF is simply a curve that shows the various possibilities or varying amounts of two commodities that can be produced with the necessary resources and technology. It is usually assumed when the existing resources are fully and efficiently utilized.
As per the question, if the resources are inefficiently employed, it implies that the economy is not maximizing its level of output. It indicates that the economy is somewhere within the PPF.
Look at the diagram attached below.
Points A, B and C indicate a fully efficient combination between the two commodities, wine and cotton. The curve that passes through them is the PPF.
Point X, however, does not lie on the curve, it lies within the curve. This shows that that combination is inefficient.
