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Combination A shows that 100 units of machines can be produced without
any production of the wheat. Likewise, combination E shows that the 40kg wheat
can be produced without any production of machine. Besides these extreme
limits, Points A, B, C, D and E show different possibilities of production, of
two goods that economy can produce with the given resources and technology.
Joining all these points, we get the AE curve. It is the production possibility
curve or transformation curve. In diagram combination G shows underutilisation
of resources and Combination F is the unattainable resources in given
resources.
The assumption of
PPC:
1. Only
two goods are produced in an economy.
2. Resources
are limited & have alternative uses.
3. Resources
are fully & efficiently utilised.
4. Level
of technology remains constant.
5. Resources are not equally efficient in the production of all goods.
µ Features of PPC:
1. Slopes Downwards: Production
possibility curve slopes downward from left to right. It is because, in a
situation of fuller and efficient utilisation of the given resources, more
of one goods can be produced only by sacrificing the production of other goods.
2. PPC is concave to
the origin: PPF
is concave shaped because of the increasing marginal rate of transformation
(MRT). MRT increases because it is assumed that no resources are equally
efficient in the production of all goods.
If the economy produces more units of one good (x-goods), less efficient
resources have to be used so more and more units of other goods (y-goods) will
have to be sacrificed.
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