PART A

Q1) PPF illustrates such basic economic concepts as:

Opportunity Cost: This is indicated by the negative slope of the PPF curve. As more
DVDs are produced, fewer cell phones are produced. This reduction in the
production of cell phones crab puffs is the opportunity cost of DVDs production;

Full Employment: This is indicated by producing on the PPF curve. The curve
indicates the maximum production of DVDs and cell phones obtained with existing
technology, given that all available resources are engaged in production;

Unemployment: This is indicated by producing inside the PPF curve. If some

available resources are not engaged in production, then the economy is not
achieving maximum production;

Economic Growth: This is indicated by an outward shift of the PPF curve, which is
achieved by relaxing the assumptions of fixed resources and technology or by
increasing the quantity or quality of resources. With economic growth more of both
goods, DVDs and cell phones, can be produced;

Investment: This is indicated by a tradeoff between the production of consumption

goods and capital goods. Investment results if society moves along the PPF curve,
producing more capital goods and fewer consumption goods.
Scarcity:

Q2)