Does production takes place only on PPC

production on ppc is an idealistic situation but in reality its not necessary for an economy to produce on ppc.. it may operate inside ppc. as normally there is underutilisation of resources.

Well above answers are incomplete.

Production take place on PPC, below PPC, as well as above PPC.

On PPC - All resources are employed an ideal situation.

Below PPC - Underutilization of resources, lower productivity.


Above PPC - All resources are employed but through External trade a point above PPC is achieved.

Example -
Country A can produce 500 biscuits OR 100 cookies by employing all resources.
Country B can produce 400 cookies OR
100 biscuit.

Now as Country A is inefficient in producing cookies ,they produce only 500 biscuits.
Also country B is inefficient producing biscuit so they produce only 400cookies.

Now Country A ask Country B that they give A 100 cookies and for that take 100 biscuits. (Fair trade).
Country B agrees.

So Country A has 400biscuits and 100cookies. Which is beyond their production level as earlier they could only produce 100cookies only but now they through trade has 400 biscuits extra.

Well. I guess no