Question

In the following Question, read the following statements and choose the correct alternative:

Statement 1: Production Possibility Frontier will shift towards left when there is decrease in resources with respect to both the goods. 

Statement 2: An economy cannot operate at any point outside Production Possibility Frontier as it is unattainable with the available productive capacity.

Options

• Both the Statements are true.

• Both the Statements are false.

• Statement 1 is true and Statement 2 is false.

• Statement 2 is true and Statement 1 is false.

Answer 1

Both the Statements are true.

Explanation:

 A decrease in resources for both goods reduces productive capacity and shifts the PPF left. Combinations outside the PPF are unattainable with the available resources and technology.