Basic Problems of an Economy — Important Questions

Concave to the origin

Step 1: Think about what happens to opportunity cost as we produce more of one good. Step 2: As we shift resources to produce more of Good X, we have to sacrifice increasing amounts of Good Y - this is the Law of Increasing Marginal Opportunity Cost. Step 3: Because the opportunity cost keeps INCREASING, the PPC bends outward from the origin, making it CONCAVE to the origin. Step 4: A straight line would mean constant opportunity cost (resources equally efficient for both goods). Step 5: Convex to origin would mean decreasing opportunity cost, which never happens in reality. So the correct ans

Under-utilisation or inefficient use of resources

Step 1: Understand the three zones around a PPC. Step 2: Points ON the PPC represent full and efficient utilisation of resources - the best the economy can do. Step 3: Points OUTSIDE the PPC are unattainable with current resources and technology - they represent scarcity. Step 4: Points INSIDE the PPC mean the economy is NOT using all its resources or is using them inefficiently - some resources are idle (unemployed workers, unused land, etc.). Step 5: Therefore, a point inside PPC = under-utilisation or inefficient utilisation of resources.

Unlimited availability of resources

Step 1: Recall the three causes of the economic problem given by Prof. Lionel Robbins. Step 2: Cause 1 - Unlimited human wants: people always want more. Step 3: Cause 2 - Limited (scarce) resources: we cannot produce everything. Step 4: Cause 3 - Resources have alternative uses: choices must be made about how to use them. Step 5: 'Unlimited availability of resources' is the OPPOSITE of what causes the economic problem. If resources were unlimited, there would be NO economic problem at all. So this is the correct answer as the option that does NOT cause the economic problem.

Growth of resources or technological advancement for both goods

Step 1: Understand the difference between a SHIFT and a ROTATION of PPC. Step 2: A SHIFT of PPC means the entire curve moves - this happens when resources change with respect to BOTH goods. Step 3: A rightward (outward) shift means the economy can now produce MORE of BOTH goods - this happens due to: discovery of new resources, increase in skilled labour, new equipment, or technology improvement for both goods. Step 4: A leftward shift means resources decreased (wars, natural calamities). Step 5: Improvement in technology for ONLY ONE good causes ROTATION, not a full shift. So the answer is ri