Question

Clearly define and discuss what a country’s PPF represent. In particular, answer, what does each point on the country’s PPF represent and what does the slope at each point represent? [HINT: they may represent more than one thing].

Answer 1

Answer - The PPF of the country represents the combination of the two goods which the economy can produce with the given amount of resources. It is a downward sloping curve and concave to the origin. For denoting the optimal number of goods which can be produced , the points must lie on the PPF curve. The points inside the curve are inefficient and the points outside the curve are unattainable. The curve is downward sloping or has a negative slope because of the increasing marginal rate of transformation. This means that for the production of additional units of 1 good , more and more units of other good have to be sacrificed. This gives the concave shape and the negative slope to PPF curve.