Explain the properties of PPC with the help of numerical example.
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The curve which shows the combinations of two goods and services that can be produced with fuller utilisation of a given amount of resources in the most efficient way and with a given production technology is called Production Possibility Curve. It is also known as Production Possibility Frontier (or PPF) and Transformation Curve. The following are the properties of a PPC.
i. Concave to Origin: PPC curve is concave to the origin. This is because of the increasing opportunity cost i.e. in accordance with the law of increasing opportunity cost.
ii. Increasing Marginal Rate of Transformation: The slope of PPC (MRT) shows, for the production of every additional unit of one good, more and more units of other good has to be sacrificed. In other words, as we move down along the PPC, the slope of PPC (or MRT) increases.
iii. Downward Sloping: PPC curve is downward sloping as more production of one good is associated with the decline in production of the other good.
iv. Optimum utilisation of resources: The points that lie on the Production Possibility Frontier are associated with full employment of resources and efficient utilisation of the available technology.
Let us suppose that the economy can produce two commodities, cotton and wheat. We suppose that the productive resources are being fully utilized and there is no change in technology. The following table gives the various production possibilities.
It all available resources are employed for the production of wheat, 15,000 quintals of it can be produced. If, on the other hand, all available resources are utilized for the production of cotton, 5000 quintals are produced. These are the two extremes represented by A and F and in between them are the situations represented by B, C, D and E. At B, the economy can produce 14,000 quintals of wheat and 1000 quintals of cotton.
At C the production possibilities are 12,000 quintals of wheat and 200u quintals of cotton, as we move from A to F, we give up some units of wheat for some units of cotton For instance, moving from A to B, we sacrifice 1000 quintals of wheat to produce 1000 quintals of cotton, and so on. As we move from A to F, we sacrifice increasing amounts of cotton.
This means that, in a full-employment economy, more and more of one good can be obtained only by reducing the production of another good. This is due to the basic fact that the economy’s resources are limited.
The following diagram (21.2) illustrates the production possibilities set out in the above table.
In this diagram AF is the production possibility curve, also called or the production possibility frontier, which shows the various combinations of the two goods which the economy can produce with a given amount of resources. The production possibility curve is also called transformation curve, because when we move from one position to another, we are really transforming one good into another by shifting resources from one use to another.
It is to be remembered that all the points representing the various reduction possibilities must lie on the production possibility curve AF and not inside or outside of it. For example, the combined output of the two goods can neither be at U nor H. (See Fig. 21.3) This is so because at U the economy will be under-employing its resources and H is beyond the resources available.
I hope that it gonna help you.. fewww it take too much time to done. i also attached 3 pictures for diagram and table.
The curve which shows the combinations of two goods and services that can be produced with fuller utilisation of a given amount of resources in the most efficient way and with a given production technology is called Production Possibility Curve. It is also known as Production Possibility Frontier (or PPF) and Transformation Curve. The following are the properties of a PPC.
i. Concave to Origin: PPC curve is concave to the origin. This is because of the increasing opportunity cost i.e. in accordance with the law of increasing opportunity cost.
ii. Increasing Marginal Rate of Transformation: The slope of PPC (MRT) shows, for the production of every additional unit of one good, more and more units of other good has to be sacrificed. In other words, as we move down along the PPC, the slope of PPC (or MRT) increases.
iii. Downward Sloping: PPC curve is downward sloping as more production of one good is associated with the decline in production of the other good.
iv. Optimum utilisation of resources: The points that lie on the Production Possibility Frontier are associated with full employment of resources and efficient utilisation of the available technology.
Let us suppose that the economy can produce two commodities, cotton and wheat. We suppose that the productive resources are being fully utilized and there is no change in technology. The following table gives the various production possibilities.
It all available resources are employed for the production of wheat, 15,000 quintals of it can be produced. If, on the other hand, all available resources are utilized for the production of cotton, 5000 quintals are produced. These are the two extremes represented by A and F and in between them are the situations represented by B, C, D and E. At B, the economy can produce 14,000 quintals of wheat and 1000 quintals of cotton.
At C the production possibilities are 12,000 quintals of wheat and 200u quintals of cotton, as we move from A to F, we give up some units of wheat for some units of cotton For instance, moving from A to B, we sacrifice 1000 quintals of wheat to produce 1000 quintals of cotton, and so on. As we move from A to F, we sacrifice increasing amounts of cotton.
This means that, in a full-employment economy, more and more of one good can be obtained only by reducing the production of another good. This is due to the basic fact that the economy’s resources are limited.
The following diagram (21.2) illustrates the production possibilities set out in the above table.
In this diagram AF is the production possibility curve, also called or the production possibility frontier, which shows the various combinations of the two goods which the economy can produce with a given amount of resources. The production possibility curve is also called transformation curve, because when we move from one position to another, we are really transforming one good into another by shifting resources from one use to another.
It is to be remembered that all the points representing the various reduction possibilities must lie on the production possibility curve AF and not inside or outside of it. For example, the combined output of the two goods can neither be at U nor H. (See Fig. 21.3) This is so because at U the economy will be under-employing its resources and H is beyond the resources available.
I hope that it gonna help you.. fewww it take too much time to done. i also attached 3 pictures for diagram and table.
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