Answer to Question #155214 in Microeconomics for Ankit Adak

Question

PP Frontier slopes downward because production of one commodity (X) can be increased only by decreasing the production of second commodity (Y). Explain

Answer 1

Because of scarcity of resources (such as labor, land, capital or raw materials) there is a limit to the quantities of commodities and services that society can produce. Let suppose for the sake of simplicity, that society desires two commodities: first commodity (X) and second commodity (Y). The society must decide what commodity to produce. We can estimate what commodity to produce from the graph called Production Possibility Frontier. In the graph, first commodity (X) is shown on the horizontal axis and the second one (Y) on the vertical axis. If the society allocates all resources to produce commodity Y, we will mark it as a point on the upper end of the vertical axis. If the society allocates all resources to produce commodity X, we will mark it as a point on the end of the horizontal axis. In between this point there are many possible combinations of commodities X and Y that can be produced by society. As a result, we get the PPF (Production Possibility Frontier) curve with the downward slop, - which outlines the tradeoff between devoting social recources to coommodity X or to commodity Y.