Since the slope of a concave curve increases as we move downwards along the curve, the MRT also rises as we move downwards along the curve.
The slope of PPF is a measure of the MRT. For example MRT between the possibilities D and E is equal to DH/HE and between E and F, it is equal to EI/IF and so on. an economy can never operate at any point outside the PPF (like F).įor “An economy always produces on, but not y inside, a PPF”, refer HOTS. With the given amount of available resources, it is impossible for the economy to produce any combination more than the given possible combinations i.e. If there is wastage or inefficient utilisation of resources, then economy will operate at any point inside the PPF (like E). However, the actual production can fall short of its capabilities. The exact point of operation depends on how well the resources of the economy are used. It only shows the maximum available possibilities, which an economy can produce. It must be remembered that PPF does not show the point at which the economy will actually operate.
Whether Economy will always operate on PPF? Technically, a curve with an outward bend is described as ‘Concave to the Origin’. Due to increasing marginal opportunity cost, PPF becomes more and more steep as we move from points A to G. In the given example, units of guns sacrificed keep on increasing each time to increase production of one unit of butter. more and more units of one commodity are sacrificed to gain an additional unit of another commodity. PPF is concave shaped because of increasing marginal opportunity costs, i.e. As there exists an inverse relationship between changes in quantity of one commodity and change in quantity of the other commodity, PPF slopes downwards from left to right (see Fig.
In such a case, more of one good can be produced only by taking resources away from the production of another good. PPF shows all the maximum possible combination of two goods, which can be produced with the available resources and technology. The two basic characteristics or features of PPF are: 1. In the given case, 2G is the opportunity cost of producing IB, i.e. If the economy decides to produce 2B, then it has to cut down production of guns by 2 units. 20G + IB) can be produced by utilising the resources fully and efficiently. According to Table 1.1, 20 units of guns and 1 unit of butter (i.e.
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