Which one of the following statements is true with regard to an economy which is on its production possibility frontier?
- A.The economy has to sacrifice some production of one commodity in order to increase the production of another commodity
- B.There is no limit or constraint for the economy in the production of goods and services
- C.The economy can produce more of one commodity up to a point without reducing the production of any other commodity
- D.Its production possibility frontier is an upward sloping curve
Correct answer
Explanation
The correct answer is A. On the frontier all resources are fully and efficiently used, so producing more of one good is possible only by giving up some of the other.
The production possibility frontier (PPF) shows the combinations of two goods an economy can produce with its given resources and technology. Points on the curve are efficient; points inside it mean idle or wasted resources; points outside it cannot be reached today. The amount of one good given up to get one more unit of the other is the opportunity cost, measured by the marginal rate of transformation. The PPF slopes downward and is usually concave to the origin, because resources are not equally suited to both goods, so the opportunity cost rises.
B is wrong: the PPF itself exists because resources are limited.
C is wrong: producing more of one good without cutting the other is possible only from a point inside the frontier.
D is wrong: the PPF slopes downward, showing the trade-off between the two goods.
Exam tip: on PPF = full employment and efficiency; inside = unemployment; outward shift = growth or better technology.
Practice Questions
View allThe widespread deaths due to starvation and epidemics are the characteristics of
- A.famine
- B.poverty
- C.civil war
- D.malnutrition
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A famine is marked by widespread deaths from starvation and from epidemics, which spread through contaminated water, rotting food and bodies weakened by hunger.
Read the full explanation →In India, which of the following can be considered as public investment in agriculture?
1. Fixing Minimum Support Price for agricultural produce of all crops
2. Computerization of Primary Agricultural Credit Societies
3. Social Capital development
4. Free electricity supply to farmers
5. Waiver of agricultural loans by the banking system
6. Setting up of cold storage facilities by the governments
Select the correct answer using the code given below :
- A.1, 2 and 5 only
- B.1, 3, 4 and 5 only
- C.2, 3 and 6 only
- D.1, 2, 3, 4, 5 and 6
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Public investment means government spending that creates lasting assets or capacity, while support prices, free power and loan waivers are subsidies or transfers.
Read the full explanation →Consider the following activities :
I. Production of crude oil
II. Refining, storage and distribution of petroleum
III. Marketing and sale of petroleum products
IV. Production of natural gas
How many of the above activities are regulated by the Petroleum and Natural Gas Regulatory Board in our country?
- A.Only one
- B.Only two
- C.Only three
- D.All the four
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The Petroleum and Natural Gas Regulatory Board covers the downstream chain, refining to sale, but not the production of crude oil and natural gas.
Read the full explanation →Which one of the following equals Personal Disposable Income ?
- A.Personal Income - Direct taxes paid by households and miscellaneous fees, fines, etc.
- B.Private Income - Saving of Private Corporate Sectors - Corporation Tax
- C.Private Income - Taxes
- D.Total expenditure of Households - Income Tax - Gifts received
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In national income accounting the steps run from private income to personal income to personal disposable income. Private income is the factor income of the private sector plus transfers.
Read the full explanation →With reference to India, consider the following pairs:
Organization : Union Ministry
I. The National Automotive Board : Ministry of Commerce and Industry
II. The Coir Board : Ministry of Heavy Industries
III. The National Centre for Trade Information : Ministry of Micro, Small and Medium Enterprises
How many of the above pairs are correctly matched?
- A.Only one
- B.Only two
- C.All the three
- D.None
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Each organisation is paired with the wrong ministry. The National Automotive Board works under the Ministry of Heavy Industries; it supports the automobile sector with testing and certification work and helps run schemes for the industry.
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