between haves and have – not in the society. To reduce this gap the government intervenes to regulate the use of resources. The government offers subsidy and tax – breaks for the production of goods for poorer section of the society. Solution of central Problem in different Economies:- Market Economy:- Market economy is a free economy. It means that producer are free to decide ‘what to produce, how to produce for whom to produce’. What to produce? The producer will produce those goods which are more in demand and less in supply. Such goods offer high price and high profit to the producers. How to produce? The producer will use those inputs which keep their cost of production as low as possible. For whom to produce? In a free economy, the producers will produce goods for those people who can afford to pay high price. Centrally Planned Economy:- In a centrally planned economy, decisions relating to ‘what to produce, how to produce for whom to produce’ are taken by some central authority appointed by the government of the country. All decisions are taken with a view to maximizing social welfare. In a situation of mass unemployment, labor intensive technology will be preferred. Mixed Economy:- Its include market economy as well as centrally planned economy. Decisions regarding ‘what to produce, how to produce for whom to produce’ are taken on the basis of market forces as well as on the basis of social considerations. Production Possibility Curve(PPC):- PPC curve shows different combination of two goods which can be produced with the given resources on the assumption that (i)resources are fully and efficiently utilized, and (ii)technology of production remain constant. It is also called production possibility boundary or production possibility frontier or Transformation line or Transformation curve.For example:- Goods Production possibilities schedule A B C D E Wheat (tonnes) 100 90 70 40 0 Pulse (tonnes) 0 10 20 30 40 The table showing different possibilities of production of wheat and pulses is called production possibilities schedule.A producer with the given resources and given technology may have the choice to produce either wheat or pulses. If he want to produce only wheat then he can sacrifice for the production of pulses he produce only 100 tonnes of wheat. If all the resources and technology are used for the production of pulses 40 tonnes then he can sacrifice for the production of wheat. Here, quantity of pulse is shown on X-axis and quantity of wheat is shows on Y-axis. Points A,B,C, D, and E show different possibilities of production, with the given resources and technology.Joining all these points we get AE curve. It is called production possibility curve or transformation curve. Attainable and Unattainable Combination of Output:- all point on PPC are attainable combinations of output, with the given resources and technology. Any point outside the boundary line of production shows ‘unattainable combination’ of output of two goods. Shifting/Rotation of Production Possibility Curve:- (i)Change in Resources:- (a) Resources are Increased:- If resources are increased, we can produce more of both the goods. Accordingly, PPC shift to the right from ab to a1b1. (b)Resourced are Reduced:- If resourced are reduced, we Can produce less of both the goods. Accordingly, PPC shifts to the left from ab to a2b2. (ii)Change in Technology:- (a)Efficient Technology for the Production of Commodity X:- Efficient technology for the production of commodity -X means More production of X with the same resources. Accordingly, PPC Would rotate from ab to ab1. (b)Efficient Technology for the Production of Commodity Y:- Efficient technology for the production of commodity Y would Mean more production of Y with the same resources. Accordingly PPC rotate from ab to a`b. Cont. By Gopal Sir
Posted on: Sun, 22 Sep 2013 05:48:31 +0000
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