Q4 of 31 Page 1

Which of the following is an assumption of Production Possibility Frontier?

i) Resources are not fully employed.


ii) Resources are not equally efficient for the production of the two goods.


iii) Resources are not efficiently employed.


iv) Resources available are not fixed.

Resources are not equally efficient for the production of the two goods.


Explanation


PPF depicts the various combinations of two commodities that the economy can produce using the full and efficient utilisation of the given resources and the given state of technology. It is the graphical representation of the production possibility set which depicts the alternative production possibilities of the economy. Since PPC shows the rate of transformation of one good to another, it is called the transformation curve. The slope of PPF is opportunity cost/MRT. MRT examines the trade-off between the allocation of resources between the production of goods. Since the resources are not equally effective for the production of the two goods as the resources are transferred from the production of one good to another, the productivity falls and MRT increases.



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