Production possibility curve is a curve showing different production possibilities of a set of 2 goods… Ex- war time goods (gun) and peace time goods (bread) more and more units of a commodity have to be sacrificed to gain an additional unit of another commodity. ... 2 automobiles. It is a graphical representation of two products or services which are dependent on the same finite inputs for the production process. Project Y is very safe and has an NPV of 2.5 million. Technology remains constant 2. Due to increasing marginal opportunity cost, PPF becomes more and more steep as we move from points A to G. Technically, a curve with an outward bend is described as ‘Concave to the Origin’. Resources such as nonrenewable resources will decline, but labor remains fully employed and technology is unchanged. Concept of PPF in Economics. View Answer. 2.7 - Construct a production possibilities curve for a... Ch. This model is based on three main assumptions. [CBSE 2013 Q] Answer: The concept of PP curve is based on the following assumptions: First, the amount of resources in the economy is fixed. The companys production activities mainly occur in wha... Project X is very risky and has an NPV of 3 million. For example, if there is increase in resources for production of butter and guns, we can produce more of both the goods. This is the production possibility curve which is also known as the transformation curve or production possibility frontier. again reduce production of cakes of soap by 200 to gain an additional 40 dozen eggs, so the opportunity cost of a dozen eggs is 5 cakes of soap. Refer to Table 1.6. a. (i) Rotation for commodity on the X-axis: When there is a technological improvement or an increase in resources for production of the commodity on the X-axis (say, butter), then PPF will rotate from AB to AC. a. By relaxing the assumption of given and constant production with the help of the production possibility curve the increase in the production of both the goods than before. As you move from point A to point B: A. production efficiency is increased because we have more of good X. Production Possibility Frontier. Diminishing Marginal Rate of Substitution: Indifference curves are assumed to be convex to the origin. In such a case, more of one good can be produced only by taking resources away from the production of another good. Production Possibility Curve is based upon following assumptions: (i) The amount of productive resources is fixed (ii) There is no change in technology (iii) All the productive resources are fully employed (iv) All resources are not equally efficient in the production of all goods. How could real GDP grow while, over the same period, real GDP per capita f... Would there be a need for a rationing device if scarcity did not exist? Production Possibilities 1.3 Trade offs and opportunity costs can be illustrated using a Production Possibilities Curve. c. Resources can vary; most resources experience times of unemployment; and technology advances, particularly during wartime. As you can see, the production possibility curve is a straight line, so opportunity cost is constant and independent of the level of production … 2 - Which of the following reasons could explain why... Ch. Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*. Some countries with very low incomes per capita are unable to save very much. PPF illustrates the concept of opportunity cost. If there is wastage or inefficient utilisation of resources, then economy will operate at any point inside the PPF (like E). Disclaimer 9. Based on the findings, three cases are listed for positive economic growth in the ‘Three cases for … 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. 1.6 and Table 1.1), the production of butter rises from 4 units to 5 units, but the number of guns decreases from 11 units to 6 units, i.e. Resources such as nonrenewable resources will decline, but labor remains fully employed, and technology is unchanged. D. the change in efficiency is unclear. PPF is concave shaped due to increasing MOC. Why? 2. If the economy decides to produce 2B, then it has to cut down production of guns by 2 units. In the given example, units of guns sacrificed keep on increasing each time to increase production of one unit of butter. We know that an economy always faces the problem of resource allocation i.e. Production possibility frontier is based on the following assumptions: 1. Under what condition is the politici... A Bloomberg Businessweek North American subscriber study collected data from a sample of 2861 subscribers. A) resources are fully employed. Question 46 Not yet answered Marked out of 1.00 P Flag question A shift in supply curve is caused as a result of changes. Content Filtrations 6. It is, however, a useful simplifying assumption. Explain your answer. (2) The same resources can be used to produce either or both of the two … This model graphically represents a hypothetical situation of … 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. a. B) there is a fixed time period. Fixed resources 2. The amount of resources in an economy is fixed, but these resources can be transferred from one use to another; 2. Free Online MCQ Questions for Class 11 Microeconomics with Answers was Prepared Based on Latest Exam Pattern. As we include more and more production units, the curve will become smoother and smoother. 1.1), it is called ‘Production Possibility Frontier (PPF)’ or ‘Production Possibility Curve (PPC). Then, the second derivative of production possibility curve is shown. 2 - Explain verbally the statement There is no such... Ch. PPC is based on the following assumptions : (i) Only two goods can be produced with the help of given resources. The fourth assumption is that the individual continues to learn irrespective of the level of his production. Upon what specific assumptions is this production possibilities curve based? But, economy cannot operate outside PPF, known as ‘Unattainable Combina­tions’. As the choice is to be made between infinite possibilities, the economists assumed a very basic economy with only two goods (say, guns and butter). Based on the findings, three cases are listed for positive economic growth in the ‘Three cases for … The first assumption is that the curve assumed that the market/economy only have two goods/items or that the goods/items will represent the whole market/economy. Explain the criteria for stating good marketing objectives. i. 2 - Explain why scarcity forces individuals and... Ch. 2) Mr. Johnson earns $100,000 per year. Are people in these countries hel... What is the present value of 1,000 two years from today if the interest rate is 5 percent? A production possibilities curve is drawn based on which of the following assumptions? *Response times vary by subject and question complexity. 4. PPF slopes downwards, as an increase in production of one good requires decrease in production of the other. Assumptions for Production Possibility Curve (PPC) The concept of Production Possibility Curve is based on the following assumptions – The amount of resources in an economy is fixed. 1. – Production Possibility Curve 2. All of the following are assumptions of the production possibilities curve EXCEPT. Economy can either operate on PPF or inside PPF, known as ‘Attainable Combinations’. 2 - Which of the following is an example of an... Ch. The two goods have been taken just for the sake of simplicity and easy understanding. Employee Bad News: No More Help With Sky-High Tuition: Lea Tyra. Classifying and Analyzing Business Activities Cowell Company had the following business activities during 2019:... Add necessary dashes, parentheses, or periods. In case of PPF, MOC is always increasing, i.e. Compare the average cost of tablets with a ... A politician says, If you elect me, we can get more of everything we want. Resources such as nonrenewable resources will decline, but labor remains fully employed, and technology is … If some of these assumptions changes or neglected, then it affects the nature of production possibility curve. 3. Upon what specific assumptions is this production possibilities curve based? We know, PPF is concave shaped curve. B) slopes upward and to the right C) is constructed based on the assumption that an inverse relationship exists between price and income. Image Guidelines 5. The opportunity cost of a product is the alternative that must be given up to produce that product. 2 - Why does a production possibilities curve have a... Ch. How doe... Answer these questions about GDP. Economy will operate at any point inside PPF if resources are 7iot fully and efficiently utilised. b. a. 2 - Three different economies have made choices about... Ch. a. 5. o. Characteristics of the Production Possibilities Frontier(Summary) ... As you can see, the production possibility curve is a straight line, so opportunity cost is constant and independent of the level of production of soap and eggs. On the other hand, the Production Possibility Curve (PPC), also known as the Production Possibility Frontier or Boundary or the Transformation Curve shows the maximum combinations of two goods that a country can produce, with its given resources and at a given level of technology. The resources are fully and efficiently utilised; 4. Let us quickly revise the concept of PPF with the help of Fig. Every production possibility curve is based upon these assumptions. Plagiarism Prevention 4. Due to scarcity of resources, we cannot satisfy all our wants. After that, possible shapes of PPF are shown under Harrod-neutrality assumption. 7. What happens to the MP of labor when the market price of the good produced increases a. What has happe... Job-Order Cost Sheets, Balance in Work in Process and Finished Goods Prull Company, a job-order costing firm, w... What documents are needed for cost accounting clerks to update the work-in-process accounts with standard charg... City 1 produces 500 tons of waste per day, and city 2 produces 400 tons of waste per day. 3. An outward shift in PPF from PP to P1P1 means, that the economy can produce more of both the commodities, which was not possible earlier. Which of the following is an assumption of Production Possibility Curve? 2 - Interpret the phrases There is no such thing as a... Ch. Shape. If the firm wishes to increase snowboard production, it will first use Plant 3, which has a comparative advantage in snowboards. Production Possibilities Curve as a model of a country's economy Opportunity cost and the PPC AP® is a registered trademark of the College Board, which has not reviewed this resource. In such case, existing PPF (PP) will shift to the right, represented by P1P1 in Fig. When an economy is in a recession, it is operating inside the PPC. decreasing costs. State the assumptions on which Production Possibility Curve is based || Important Question CBSE | 12 Important Questions for board exam for … In this article we will discuss about the meaning of a production possibility curve. b. PPF shows transformation of one good into another, not physically, but by diverting resources from one use to the other. The data contained in the production possibilities curves are based on the assumption of: Answer s: imperfect substitutability of resources between beer and pizza production. Production possibility frontier is based on the following assumptions: 1. Is absolute advantage or comparative advantage more important for trade? The two basic characteristics or features of PPF are: PPF shows all the maximum possible combination of two goods, which can be produced with the available resources and technology. It denotes that indifference curve technique is based on the axiom of diminishing marginal rate of substitution. Whenever the O a. income of the consumer O b. price of the product O c. taste and preferences O d. technological Question 47 Not yet answered Marked out of 100 Flag question The Production Possibility Curve is based on the assumption, "No changes in technology" because a. Resources are fixed and fully employed, and technology advances at the rate of growth of the economy overall. The circular-flow diagram illustrates that, in markets for the factors of production. 42. Production techniques remain the same. Click here to get an answer to your question ️ production possibility curve is based on the assumption of _____ ( constant technology/ changing technology… b. 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