Question

Question 1:  

Consider that society’s resources are used efficiently, and you have a combination of goods and services that can be produced. Explain the Production Possibility Frontier in detail, use the drawing to give a clear picture.

Question 2:  

Define the meaning of the following concepts; use your language to express the meaning: (LO, 1/ 10 Marks

a)Positive Economics  

b)Normative economics  

c)Marginalism

d)Efficient markets

e)Factors of production

f)Consumer Goods  

g)Scarcity and Choice

Answer 1

A)

Production possibility curve- It is a curve that represent different combination of two goods that can be produced with the given resources and technology.

Assume that in a country two goods wheat and cloth can be produced with given resources. If all resources are used in the production of wheat than 100 lakh ton wheat will be produced and If all resources are used in the production of cloth than 4 bales cloth will be produced. If the economy produce both the goods then with the given resources by making efficient use following combinations can be produced.

It also deals with scarcity, efficiency and opportunity cost

Resources are scarce. If producer want to produce one more unit of cloth , he needs to reduce the production of wheat , because resources are limited and resources will be shift from wheat to cloth in increasing amount.

Goods	A	B	C	D	E
Wheat (lakh ton)	100	90	70	40	0
Cloth ( 000 bales)	0	1	2	3	4

efficient production - Efficient production will take place at production possibility curve because all resources are fully  utilized according to their capacity.

B) Positive economics-Positive economics is a science that studies an accurate and true description of events as they happen.

Normative economics- It deals with what ought to be . It gives solution of the economic problems.

Marginalize- It is a branch of economic theory that investigates what goes on at the margin of economic activity.

Factor of production- They are the inputs used for producing output. There are four factor of production. Land, labor, capital and entrepreneur.

Consumer goods- These are the goods which are consumed by the consumers for the satisfaction of their wants.