The Production Choices to Achieve Trend Growth Assignment

The Production Choices to Achieve Trend Growth - Assignment Example The production possibility represents alternative combinations of different commodities which can be produced by the economy with the total available resources. In other words, the production possibility curve is the locus of all those points that represent different product combinations that an economy can attain by employing its total available resources to the fullest. For simplicity, let us assume that only two commodities (x and y) are being produced using the total available resources in an economy. In the following diagram, we plot units of x on the horizontal axis and units of y on the vertical axis. The curve AF represents the production possibility curve of the economy. If all the resources are devoted to the production of x then the country can get OF amount of x and no amount of y. On the other hand, if the total resources are devoted to producing y then the country can OF amount of y and no amount of x. since the resources are assumed to be fixed in quantity and since th ey are assumed to be fully employed with utmost efficiency, if though production of one commodity is increasing then that of the other will definitely decrease. For this reason, this curve is assumed to be downward sloping.   The coordinates of any point of AF curve shows the different product mix that is available to the economy to produce with the given amount of resources. Sot he country can produce at any point of the curve and achieve trend growth. If the supply of resources increase or a technological improvement takes place then the production possibility curve or production possibility frontier (PPF) will shift to the right from AF to A’F’. Any point on the curve (e.g. Point's’) implies full and efficient employment of the resources, that is, the maximum amount of output that an economy can produce in the most effective manner using the given amount of resources. Any point inside the curve (e.g. Point ‘g’) implies that production in the economy is taking place without using all the resources to the optimum level.     Ã‚