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Showing posts from March, 2023

Why is the Production Possibility Curve (PPC) Concave to the Origin? With Diagram

When we look at the shape of the PPC, we find that it curves inward or in other words, it is concave to the origin.  Why is the PPC Concave to Origin?  The PPC is concave because it has an increasing slope . This means for every additional unit of rice to be produced, more and more of wheat needs to be sacrificed i.e., for every increase in the production of rice, the quantity of wheat given up is increasing .  Combination Units of Wheat Units of Rice A 10 0 B 9 1 C 7 2 D 4 3 E 0 4 When a nation moves from a combination A to B, it is giving up 1 unit of wheat to gain 1 more unit of rice, moving from a point B to C means losing 2 units of wheat for increasing a unit of rice, point C to D shows 3 units of wheat have to be sacrificed to get an additional unit of rice. Why does the PPC have an Increasing

Why is the PPC Downward Sloping?

  If we look at the PPC , we observe two things with respect to its shape. Firstly, i t is downward sloping and secondly, i t is concave to origin. PPC is a Downward Sloping Curve  A downward sloping curve means that when the production of one good is increased, the production of the other has to be decreased in order to be on the same curve.  This means the increase in one good is not possible without decrease in the other good.  If we look at the PPC, we find that in order to increase the production of rice, the production of wheat has to be decreased. This is because the resources are being already fully utilized, so in order to increase the production of rice, more resources which are needed for rice’s production will come when some resources are taken out of the production of wheat. In the diagram, when we move from a point B to C on the PPC, there is an increase in production of Rice and a decrease in the production of wheat. Hence, when the production of rice increases, tha

Example on Production Possibilities in Economics

Ques . In a country, there are three firms, firm A, firm B and firm C, each producing chairs and tables. All firms run their production for 8 hours a day. In 1 hour, firm A can produce either 1 chair or 2 tables, firm B can produce either 2 chairs or 1 table, and firm C can produce either 1 chair or 1 table. Find the total production of chairs and tables when a) All three firms spend all their time in producing chairs. b) All three firms spend all their time in producing tables. c) All three firms spend exactly half their time on the production of each good. d) Firm A spends all its time in producing tables, firm B spends all its time in producing chairs, and firm C spends half of its time on producing each good. Ans . This is a questing relating to production possibilities of different goods in an economy. a) In the first case all the three firms are allocating all their time (i.e., 8 hours) in producing chairs and none on tables, therefore, the production of tables is 0.

Indian Economy Reports a Slowdown in Third Quarter of 2022

The Indian economy experienced a slowdown in the third quarter (Q3 i.e., October-December) of 2022, recording a growth of 4.4 percent as against a growth of 5.2 percent in the same quarter of last year (October-December 2021),as revealed by the Second Advance Estimates of National Income 2022-23 released by the Government on 28 th February 2023.  This growth of 4.4 percent is the lowest among the three quarters of 2022-23, the first quarter registering a growth of 13.2 percent and second quarter registering a growth of 6.3 percent over the corresponding quarters of the last fiscal. The GDP at constant (2011-12) prices for October-December quarter of 2022 was estimated at ₹ 40.19 lakh crore as compared to ₹38.51 lakh crore in the third quarter (October-December) of 2021. The slowdown has been attributed to a contraction in the growth of manufacturing sector and private consumption expenditure. The manufacturing sector saw a negative growth of 1.1 percent in Q3 of 2022-23. T he private

What do Shifts and Rotation of the PPC signify? With Diagram

The PPC can shift or rotate when the factors on which it depends changes. It can happen when there is either a change in resources or technology or both. Shift in the PPC T he PPC can shift forward (towards right) as well as backwards (towards left). This can happen when either there is a change in resources or technology or both.  When the nation’s resources increase, that means it can increase the production of both the goods, thus leading to a shift in the PPC forward or towards right.   In the diagram the PPC ab shifts to a 1 b 1 when there is an increase in resources in the nation leading to an increase in the production of both rice and wheat. In the same way, when the nation’s resources decrease, that means it has now less resources for the production of goods, thus leading to a shift in the PPC backwards or towards left. In the diagram, the PPC ab shifts backward to a 2 b 2 when there is a decrease in resources in the nation leading to a decrease in the production of

What do Points Lying Below and Above the PPC Signify?

What do points Lying Above or Below the Production Possibility Curve Signify? As we can see from the PPC diagram, there are some production points lying above the PPC, some below it and some on it. Points Lying Beyond or Above the Curve It is important to note that any point which lies above the curve shows such a combination of goods where the level of production of both the goods or any one good is more than any point lying on the PPC.  For example, point F in the diagram lies above the PPC. It shows a combination of 9 units of wheat and 5 units of rice. Even though at this point, the units of wheat are achievable but, the units of rice cannot be yet achieved by the nation with its present resources and technology. The maximum rice which a nation can produce is 4 units. Therefore, a points F and G lie above the curve and represent such combinations of goods which are unattainable.  Hence, all the points that lie above the curve show such combinations of goods that are unachievable