Answer to Question #197276 in Economics of Enterprise for Rita

Question

 Fully discuss how the production possibility frontier demonstrates the basic economic

Problem of scarcity.

Answer 1

 Production possibility frontier shows all different attainable combinations of the production of two commodities that can be produced in an economy with given resources and technology which are to be fully utilised. Scarcity is revealed by the fact that any movement along the PPC for example (like moving from point B to D), So if the production of good-x is increased from O to P then the production of good-y decreases from A to C which indicates that the resources are limited or scarce because if production of one good increases then the production of the other decreases.