Answer to Question #81644 in Macroeconomics for t

Question

What are the four assumptions in the production possibilities curve and how can unemployment be illustrated with that curve.

Answer 1

Assumptions:
a. The economy produces only two goods.
b. The quantity of resources in the economy is fixed.
c. Technology and the production techniques do not change.
d. Resources in the economy are fully employed and are utilized in a technically efficient way.
Along the production possibilities curve, the economy is seen to be at full employment. Any production combination of the two goods lying inside the production possibilities curve depicts unemployment since the resources are not fully utilized in the economy to the full employment level along the production possibilities curve.