why "An economy always produces on, but not inside, a PPF" ?
A PPF (Production Possibility Frontier) shows different combination of two goods that can be produced by using all the available resources and at a given level of technology. It depicts the trade-off existing between the two goods which continuously fall. It also shows the maximum level of any of the two good that can be produced if all the resources are devoted in the production of that good.
If an economy is operating at any point below the PPF, it means that it is not employing its resources efficiently and effectively. There could be the possibility of wastage of resources or under employment of available resource.
Since, wants are unlimited and resources available are limited, each economy strives to fulfil maximum possible needs out of given resources.
so, each economy produces on PPF.
If an economy is operating at any point below the PPF, it means that it is not employing its resources efficiently and effectively. There could be the possibility of wastage of resources or under employment of available resource.
Since, wants are unlimited and resources available are limited, each economy strives to fulfil maximum possible needs out of given resources.
so, each economy produces on PPF.