Meaning of Production Possibility Curve (PPC) - SS2 Economics Past Questions and Answers - page 1
The production possibility curve shows:
The maximum amount of one good that an economy can produce
The maximum amount of two different goods that an economy can produce
The minimum amount of one good that an economy can produce
What does a point inside the PPC represent?
Efficient use of resources
Inefficient use of resources
Unattainable production levels
(Points inside the PPC represent inefficient use of resources, as the economy is not fully utilizing its resources to produce as much as it can.)
The slope of the PPC represents:
The rate at which resources are being utilized
The rate at which the economy is growing
The rate at which one good must be sacrificed for an additional unit of the other good
Points outside the PPC represent:
Efficient use of resources
Inefficient use of resources
Unattainable production levels
(Points outside the PPC are unattainable with the given resources and technology, as the economy lacks the necessary resources to produce at those levels)
The PPC is a useful tool for:
Analyzing consumer behaviour
Analyzing an economy's production efficiency
Analyzing international trade policies
What is the concept of increasing opportunity cost?
The concept of increasing opportunity cost means that to produce more of one good, an economy must sacrifice the production of some amount of the other good.
How can an economy use the PPC to improve its overall welfare?
An economy can identify its comparative advantage and trade with other economies to improve its overall welfare by analyzing the PPC.