The production possibility curve is based on the following Assumptions: (1) Only two goods X (consumer goods) and Y (capital goods) are produced in different proportions in the economy. … (4) The production techniques are given and constant. (5)
The economy’s resources are fully employed and technically efficient.
On what assumptions is the PPC based explain how these conditions?
The PPC is based on assumptions that
resources are fixed, all resources are fully employed, only two things can be produced, and technology is fixed
.
What are the characteristics of PPC?
- Slopes downwards to the right: PPC slopes downwards from left to right. …
- Concave to the point of origin: It is because to produce each additional unit of commodity A, more and more units of commodity B will have to be sacrificed.
What does the PPF assume?
In business analysis, the PPF operates under the assumption that the production of one commodity can only increase if the production of the other commodity decreases, due to limited available resources. Thus, PPF
measures the efficiency with which two commodities can be produced simultaneously
.
What are the assumptions of PPF Class 11?
- The amount of resources in an economy is fixed, but these resources can be transferred from one use to another;
- With the help of given resources, only two goods can be produced; …
- The resources are fully and efficiently utilised;
- Resources are not equally efficient in production of all products.
What are the three assumptions of PPC?
Production Possibility Frontier (PPF or PPC)
PPF is the curve that shows the best (maximum) combinations of two outputs that an economy can produce given three assumptions: 1) Technology is fixed; 2) Resources are fixed; and 3) Resources are used at their fullest.
Can the PPF shift explain with diagram?
Given the fact that resources are scarce, we have constraints, which is what the curve shows us. When the economy grows and all other things remain constant, we can produce more, so this will cause a shift in the production possibilities curve outward, or to the right.
What is PPC in microeconomics?
Term. Definition.
production possibilities curve
(PPC) (also called a production possibilities frontier) a graphical model that represents all of the different combinations of two goods that can be produced; the PPC captures scarcity of resources and opportunity costs.
What does a shift in PPC indicate?
The basic idea is that anything that
causes economic output to increase or decrease
will shift this curve. … When the curve shifts outward, or to the right, that means output is increasing. When the curve shifts inward, or to the left, that means output is decreasing.
What does the slope of PPC show?
Slope of PPC shows
the ratio between the loss of output and gain of output
.
What is a PPC diagram?
The production possibilities curve (PPC) is
a graph that shows all of the different combinations of output that can be produced given current resources and technology
. Sometimes called the production possibilities frontier (PPF), the PPC illustrates scarcity and tradeoffs.
Can a PPC line be straight?
A PPC curve can be a straight line
only if the marginal rate of transformation (MRT) is constant throughout the curve
. A MRT can remain constant only if both the commodities are equally constant and the marginal utility derived from their production is also constant.
What is the shape of PPC?
The usual shape of PPC is
concave towards the
origin because the oppurtunity cost of producing a good increases when we produce more of that good. PPC is concave to the point of origin because of rising marginal opportunity cost.
When a country’s economy grows what happens to a PPF?
When the economy grows, what happens to the PPF curve?
PPF curve moves rightward
. You just studied 36 terms!
Are points outside the PPF efficient?
In the PPF, all points on the curve are points of maximum productive efficiency (no more output of any good can be achieved from the given inputs without sacrificing output of some good); all points inside the frontier (such as A) can be produced but are productively inefficient; all points outside the curve
(such as X
…
Why is stagflation such a serious problem?
Stagflation tends
to increase unemployment and prices
, making it difficult for people to buy the goods they need and find new economic opportunities. Stagflation is also bad because it is so difficult to solve. A typical solution for poor economic performance is to boost government spending.
