Economic Planning in India: Production Possibility Curve and Problem of Allocation of Resources

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Some other common problems

Some other common problems of central problems

Other Common Problems of Centarl Problems

Some other common problems of central problems

1. Fuller utilization of resources

All resources must be utilised

  • Resources should remain unutilized or idle.

  • Resources remain ideal is a wastage of resources.

  • If all resources are utilised then quantity of goods and services produced would be more.

Efficient utilisation resources

  • Scarce resources should not remain underutilized.

  • So, every economy tries to utilise the scarce resources most effectively.

  • It adopts better technology and techniques of production to ensure better utilisation of resources.

2. Growth of resources

  • It means increasing the quantity of resources and improving the quality of resources.

  • Most of present developed countries have become rich through the growth of resources.

  • So, how to find additional resources is another problem faced by all the economies.

Production Possibility Curve

  • Central problems of an economy can be shown on a production possibility curve (PPC).

  • Any point on PPC shows fuller and efficient utilization of resources.

  • Any point below PPC shows unemployment or inefficient utilization of resources.

  • Any shift of PPC towards right shows growth of resources.

Problem of Allocation of Resources

  • An economy has only limited resources.

  • There can be many combinations of goods that economy can produce with its limited resources.

  • For example: Suppose an economy choose to produce only two goods with its resource’s cloth and wheat. Also suppose that given amount of resources when fully and most efficiently utilised can produce the following combinations of cloth and wheat.

Showing image of xample of Production possibility curve

Example of Production Possibility Curve

Showing image of xample of Production possibility curve

Underutilisation or inefficient utilisation of resources

  • If the economy is producing any such combination of cloth and wheat which is given by any point on the curve AE.

  • Then, economy using its given resources fully and most efficiently.

  • Economy producing any such combination shown by point that lies below the production possibility curve.

  • If it uses its resources fully and most efficiently it can increase its production and can shift to a better combination.

Growth of resources

  • Every economy tries to find additional resources.

  • Growth of resources will result in more production of goods and services.

  • The below graph shows the increased production of cloth and wheat due to the growth of resources.

Example of production possibilty curve of growth of resources

Example of PPC of Growth of Resources

Example of production possibilty curve of growth of resources

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