Question : Which of the following statements is correct regarding the production possibility frontier?
I. It gives the combinations between two goods that can be produced when the resources of the economy are fully utilised.
II. It illustrates the production possibilities of the economy.
Option 1: Only I
Option 2: Only II
Option 3: Both I and II
Option 4: Neither I nor II
Correct Answer: Both I and II
Solution : The correct answer is Both I and II.
A graph known as the production possibilities curve (PPC) illustrates every possible output combination that is currently possible with available resources and technological advancements. The PPC, also known as the production possibilities frontier (PPF), is a diagram that shows trade-offs and scarcity.