Answer to Question #197096 in Economics for ndumiso

Question

fully discuss how the production possibility frontier demonstrates the basic economic problem of scarcity

Answer 1

To make forecasts and determine the course of action, economists use various kinds of models that, despite their simplicity, reflect certain trends. The problem of choice under constraints

the resource illustrates the Production Capability Curve (CPV) model.

The curve, or border, of production possibilities, shows the maximum possible volume of production of goods, provided the full and best use of a fixed amount of resources with a constant technology. The production opportunity curve shows the range of alternative opportunities available to society.

For two goods X and Y, the production possibility frontier is drawn on a plane. If all resources are directed for the production of the good X, then the quantity Xmax can be produced. If all resources are directed to the production of the good Y, then the amount of this good Ymax can be produced, as shown in the figure. When the distribution of resources between goods X and Y can be obtained the number of goods corresponding, for example, points A or B on the curve.

Point D and other points abroad are unattainable with the resources and technology available. Points within the border (for example, point C) describe a situation where resources are not fully utilized or inefficiently used. Any point on the checkpoint (for example, points A and B) corresponds to the full and technologically efficient use of resources. This means that it is impossible to increase the volume of production of one of the goods without reducing the production of another good.

The figure shows that to increase the output of good X from 1 to 2 units, it is necessary to reduce the production of good Y from 8 to 5 units. This means that the opportunity cost of the second unit of good X is equal to three units of good Y.