Which one of the following statements about production possibility frontier is not correct?
- (a)The production possibility frontier slopes downwards to the right as the resources are limited.
- (b)The different combinations of various goods and services given the available resources and technology are denoted by the production possibility frontier.
- (c)Any point on or inside the production possibility frontier is attainable under the existing technology and resources.
- (d)On the production possibility frontier, the output of one commodity can be increased without changing the output of another commodity.
Correct — D, On the production possibility frontier, the output of one commodity can be increased without changing the output of another commodity. This is the one statement that contradicts the whole idea. A point on the frontier is a point where every available resource is already employed with the best technology to hand, so there is nothing spare to draw on. Producing another unit of one good means pulling labour and capital away from the other, and its output must fall. The free lunch this statement describes is available only when the economy is at a point inside the frontier, with resources lying idle.
- (a)The production possibility frontier slopes downwards to the right as the resources are limited. — This is correct. Resources are limited, so more of one good has to be paid for with less of the other, and that trade-off is what makes the curve slope downwards to the right.
- (b)The different combinations of various goods and services given the available resources and technology are denoted by the production possibility frontier. — This is the standard definition. The frontier traces the combinations of goods and services an economy can produce with the resources and technology it has.
- (c)Any point on or inside the production possibility frontier is attainable under the existing technology and resources. — This is correct too. Points on the frontier are attainable and efficient; points inside are attainable but wasteful, with unemployed resources; only points outside are unattainable.
The production possibility frontier shows the maximum combinations of two goods an economy can produce when all its resources are fully and efficiently employed with existing technology. It slopes downward because resources are scarce, and it is usually drawn concave to the origin because resources are not equally suited to both uses, so the opportunity cost of each extra unit rises. Growth in resources or an improvement in technology shifts the whole curve outward.
The three true statements each describe a different property of the curve — its slope, its meaning and the attainability of its points — while the false one denies the scarcity that generates all three. A candidate can test any statement of this kind by asking what would have to be true for it to hold. Here it would require an idle resource, and the frontier is defined as the place where none is idle.
- The production possibility frontier shows the maximum output combinations attainable with given resources and technology.
- It slopes downward because scarcity forces a trade-off between the two goods.
- It is concave to the origin because opportunity cost rises as more of one good is produced.
- Points inside the curve indicate unemployed or inefficiently used resources; points outside are unattainable.
- Economic growth or better technology shifts the whole frontier outward.
The false statement describes a gain with no sacrifice, which is possible only from a point inside the curve.
- Confusing a point inside the curve with a point on it.
- Assuming an outward shift of the curve is possible without more resources or better technology.
- Reading 'attainable' as 'efficient' — points inside the curve are attainable but not efficient.
A negative statement item on a single diagram; the concept is asked more often through opportunity cost, which is the slope of this very curve.
If a commodity is provided free to the public by the Government, then
- (a) the opportunity cost is zero.
- (b) the opportunity cost is ignored.
- (c) the opportunity cost is transferred from the consumers of the product to the tax-paying public.
- (d) the opportunity cost is transferred from the consumers of the product to the Government.
Answer(c) the opportunity cost is transferred from the consumers of the product to the tax-paying public.
The same scarcity argument applied to public provision — resources used one way cannot be used another, which is precisely why the frontier slopes downward.
Which one of the following is the opportunity cost of a chosen activity?
- (a) Out of pocket cost
- (b) Out of pocket cost plus cost incurred by the Government
- (c) Value of all opportunities forgone
- (d) Value of next best alternative that is given up
Answer(d) Value of next best alternative that is given up
Defines the quantity the slope of this curve measures; a movement along the frontier is the next best alternative being given up.
- practice — not a real PYQ
A point lying inside the production possibility frontier indicates
- (a)full employment of resources
- (b)unemployed or inefficiently used resources
- (c)an unattainable combination
- (d)the highest possible output
Answer(b) unemployed or inefficiently used resources — output of both goods could be raised.
- practice — not a real PYQ
The production possibility curve is usually drawn concave to the origin because
- (a)resources are unlimited
- (b)opportunity cost rises as more of one good is produced
- (c)technology is fixed
- (d)the two goods are perfect substitutes
Answer(b) opportunity cost rises as more of one good is produced — resources are not equally suited to both uses.