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Home Questions WEAXGT53JV
Target Exam

CUET

Subject

Economics

Chapter

Micro Economics: Introduction

Question:

Assume there are only two goods produced in the economy (having fixed amount of resources and technology), Good A and Good B. The quantities of Good A and Good B which can be produced using given resources are plotted on a graph with good A on x-axis and Good B on y-axis. Different combinations of A and B when plotted and joined gave a downward sloping concave curve. One point, Point F lies above the curve. Point E lies below the curve.

Why is the obtained curve concave to origin?

Options:

Increasing marginal rate of substitution 

Increasing marginal rate of transformation 

Diminishing marginal utility 

Decreasing marginal rate of transformation

Correct Answer:

Increasing marginal rate of transformation 

Explanation:

The correct answer is Option 2: Increasing marginal rate of transformation

The obtained curve is a Production Possibility Curve (PPC), which represents different combinations of Good A and Good B that can be produced using the available resources and technology.

  1. The PPC is concave to the origin because resources are not equally efficient in producing both goods.
  2. As more of Good A is produced, increasing amounts of Good B must be sacrificed due to the law of increasing opportunity cost.
  3. This results in an increasing marginal rate of transformation (MRT), which means that more units of Good B must be given up to produce each additional unit of Good A.
 
 

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