(a) What is production possibility curve? (3marks) (b) Draw a production possibility curve and indicate any: (i) Point P, where resources are fully utilized...

(a) A production possibility curve (PPC) is a graph which shows the maximum possible combinations of two goods that an economy can produce with its given resources and level of technology, within a given period.

(b) The production possibility curve is illustrated below.

• P lies on the PPC. At this point, available resources are fully and efficiently utilized.
• U lies inside the PPC. At this point, resources are under-utilized or inefficiently used.
• X lies outside the PPC. This output combination is not feasible with the present resources and technology.

(c) Production at point X can become feasible through any two of the following:

1. Increase in productive resources: An increase in the quantity or quality of land, labour, capital and entrepreneurship will increase the productive capacity of the economy. The PPC will shift outward, making point X attainable.
2. Technological advancement: Improved methods of production, research and development, and better machines increase output from the same quantity of resources. This shifts the PPC outward and may make X feasible.
3. Human capital development: Training and retraining workers improve their skills, efficiency and productivity. More goods can then be produced, causing an outward shift of the PPC.

(d) The PPC slopes negatively because resources are limited. To produce more of one commodity, some resources must be transferred from the production of the other commodity. Therefore, more of one good can only be obtained by sacrificing some quantity of the other good, which is the opportunity cost.