By clicking Accept, you consent to the use of ALL the cookies. To elaborate, an economy reduces a portion of resources from the production of butter to produce more sugar. A glance at Figure 5.1 will reveal that if the economy is operating at point B on the production possibility curve AF, then one thousand metres of cloth and fourteen thousand quintals of wheat are being produced. In the modern economic theory gains from international trade have also been explained with the aid of production possibility curve. Because resources, including raw materials, are scarce and limited in nature, producers are often faced with the question of, What to produce? and How much to produce? Typically, such a problem is solved by allocating available resources in a way that helps to meet consumers demand effectively and in turn, generate substantial profits. The loss of production is the result of inefficient use of the resources. If every trade-off were the same, it would create a straight line. Understanding and creating graphs are critical skills in macroeconomics. //
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