The presentation gives a brief introduction regarding the Central Problems of an Economy.

2. WHAT ARE THE CENTRAL PROBLEMS OF AN
ECONOMY?
• WHAT TO PRODUCE?
1. CONSUMER GOODS
2. CAPITAL GOODS
• HOW TO PRODUCE?
1. LABOUR INTENSIVE USAGE (L>K)
2. CAPITAL INTENSIVE USAGE (K>L)
• FOR WHOM TO PRODUCE?
1. PERSONAL DISTRIBUTION
2. FUNCTIONALDISTRIBUTION
• GROWTH OF RESOURCES

3. WHAT IS PRODUCTION POSSIBILITY
CURVE?
• ALSO KNOWN AS TRANSFORMING LINE/CURVE
• DIFFERENT COMBINATIONS OF A PAIR OF GOODS
WHICH CAN BE PRODUCED WITH THE GIVEN
RESOURCES.
• ASSUMPTIONS
1. RESOURCES ARE FULLY AND EFFICIENTLY UTILIZED.
2. TECHNIQUE OF PRODUCTION REMAINS CONSTANT.
SHOWS THE LIMIT OF WHAT CAN BE PRODUCED WITH
PRESENT RESOURCES.
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0
50
100
150
Cloth
Wheat

4. WHEN WILL THE PRODUCTION POSSIBILITY
CURVE SHIFT?
• INCREASE IN RESOURCES • DECREASE IN RESOURCE
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0
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Wheat
0 1 2 3 4 5
0
50
100
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Cloth
Wheat

5. WHEN WILL THE CURVE ROTATE?
• EFFICIENT TECHNOLOGY FOR GOOD ON X-AXIS
• OR EFFICIENT TECHNOLOGY ON Y-AXIS
• IN CASE THE EFFICIENT TECHNOLOGY IS
INTRODUCED FOR BOTH THE COMMODITIES, PPC
SHIFTS PARALLEL UPWARDS.
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Cloth
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6. WHAT ARE THE BASIC PROPERTIES OF PPC?
1. PRODUCTION POSSIBILITY CURVE SLOPES
DOWNWARDS
2. PPC IS CONCAVE TO THE ORIGIN
THEREFORE, THIS LAW WORKS ON THE PROPERTY
OF INCREASING OPPORTUNITY CURVE.
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7. OTHER POSSIBILITIES
• DECREASING OPPORTUNITY COST • CONSTANT OPPORTUNITY COST
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0
50
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Cloth
Wheat
0 1 2 3 4 5
0
20
40
60
80
100
Wheat