The nature of basic economic problems explained above can be better understood and distinguished from each other with the aid of an important tool of modem economics known as production possibility curve. To define the meaning of production possibility curves. To discuss the economic importance of the law of increasing opportu-nity cost. 4. To understand the economic implication of the production possibility curve model. It describes all the possible combinations of any two commodities that can be produced by an economic system by using all resources with maximum possible efficiency. Introduction Important Questions for Class 12 Economics Central Problems of An Economy, Production Possibility Curve and Opportunity Cost. An economy capable of producing two goods, A and B, is initially operating at point M on production possibilities curve OMR in Panel (a). It is also known as transformation curve or production possibility frontier. Production possibility curve is also called production possibility frontier. ADVERTISEMENTS: Assumptions Made while Drawing Production Possibility Curve! With this meaning we have several other aspects also to ⦠During this period, the technology that affects the process of production is assumed to be constant. Armed with that information, business owners pick the combination that ⦠2. 3. An economy capable of producing two goods, A and B, is initially operating at point M on production possibilities curve OMR in Panel (a). The slope of Plant 1âs production possibilities curve measures the rate at which Alpine Sports must give up ski production to produce additional snowboards. Figure 2.10 Economic Growth and the Production Possibilities Curve. 12. 1.Economic Problem Problem of choice or a problem of allocation of resources is the major economic problem which arises due to scarce resources and alternative uses of resources. Figure 2.13 Economic Growth and the Production Possibilities Curve. Let us discuss some important Uses of Production Possibility Curve: . Production Possibility Curves Objectives 1. It further helps to identify an ideal combination of two commodities to produce them both with the available resources. Uses of Production Possibility Curve . 13. The basic economic problem of scarcity on which Robbinsâ definition of economics is based, can be explained with the aid of production possibility curve. The focus of all such, points is the production possibilities curve (PPC) of society. Given this production possibilities curve, the economy could not produce a combination such as shown by point N, which lies outside the curve. Ans: Production possibility curve is a graphical representation which helps to analyse and illustrate the pertinent problem of choice. It enables the planning authority of a developed nation to divert the usage of its resources for the production of necessary goods to the production of luxury goods and from consumer goods to producerâs goods, after a certain point of time. Given this production possibilities curve, the economy could not produce a combination such as shown by point N, which lies outside the curve. Because the production possibilities curve for Plant 1 is linear, we can compute the slope between any two points on the curve and get the same result. It is an important tool to solve the central economic problems. A production possibility frontier is a curve that represents the rates of production of two commodities that use the same factors of production within a specified period (Bradford, 2007). Production possibility frontier or curve is an important concept of modern economics. 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