Central Problems & Solutions of an Economy, Production Possibility Curve & Opportunity Cost

1 Mark Questions

1. Unemployment is reduced due the measures taken by the government. State its

economic value in the context of Production Possibilities Frontier. (Delhi 2014)

Ans. When government taken measures to reduce the unemployment it enables the economy to utilise its existing resources in the optimum manner and moves from inside the PPC to points on the PPC. Hence, economic value is reflected in terms of increased output arid income.

1. Large number of technical training institutions have been started by the

government. State its economic value in the context of Production Possibilities Frontier. (Foreign 2014)

Ans. The technical training institutions will help increase the efficiency of the labour force, leading to optimum utilisation of resource. Economy will move from a point below PPC towards a point on PPC.

Economic value reflected is in terms of increased productivity.

1. Take the economic value achieved through the spread of education in the context Of production potential. (Compartment 2014)

Ans. Government's endeavours to spread education will lead to an increase in the quality of the work force. The production potential of country would also increase. Economic value reflected is in terms of providing better quality work force.

4. Define Production Possibility Curve (PPC). (All India 2010,2009)

Ans. It is a curve which shows various production possibilities with the help of given limited resources and technology. It is also known as Production Possibility Frontier and transformation curve.

1. Why does an economic problem arise? (Delhi 2009,2007)

Ans. An economic problem arises due to relative scarcity of resources having alternative use and unlimited human wants.

1. Give the meaning of opportunity cost. (AN India 2009; Delhi 2009c, 2008, 2007,2006)

Ans. Opportunity cost for a commodity is the amount of other commodity that has been

foregone in order to produce the first or in other words, it is the cost of the next best (second best) opportunity foregone.

7. Give two reasons for the problem of choice. (AN India 2007)

Ans. Two reasons for the problem of choice are as follows:

1. Resources are scarce.
2. Resources have alternative uses.

8. What does the rightward shift of Production Possibility Curve indicate? (Delhi 2007)

Ans. The rightward shift of Production Possibility Curve indicates the increase in the resources or improvement in the technology of production of the economy, which expands production of both the goods.

1. What does the problem for whom to produce refer to? (All India 2007)

Ans. This is essentially the problem of distribution of income between (i) the different groups of the society

1. now and in future.

3 Marks Questions

10. Explain the central problem for whom to produce. (Delhi 2014)

Ans. Under this problem, the decision is to be taken for whom we should produce commodities for the rich or for the poor. All goods and services cannot be produced for everyone. If we produce for the rich, who have capacity to buy, then poor people will suffer from starvation.

On the other hand, if we produce for the poor for the sake of social justice, then we will have to consider, do they have resources to buy?

11. Why does the problem of what to produce arise? Explain. (Compartment 2014)

Ans. Problem of 'what to produce' arises as the economy has limited resources... Because of scarcity city of resources, producers are unable to produce everything in desired quantity, but they will have to make a choice as to which one is important as a whole, so that limited resources can be rationally managed.

Problem of 'what to produce' involved two fold decisions; kinds of goods to be produced and quantity of goods to be produced.

12. Define Production Possibility Curve (PPC). Explain, why it is downward sloping from left to right? (Foreign 2014; All India 2012; Delhi 2006C)