Consider the following statements and choose the correct option:
Statement 1: The Production Possibility Frontier (PPF) shows the trade-offs and opportunity costs faced by an economy.
Statement 2: The PPF is used to estimate the government's total revenue and expenditure.
Show answer & explanation
Correct answer: A
Explanation
The correct answer is Option 1 i.e. Only Statement 1 is correct.
Statement 1 is correct: The Production Possibility Frontier (PPF) is a curve representing all maximum output possibilities for two goods, given a set of inputs. It illustrates scarcity, trade-offs, and opportunity costs, as producing more of one good requires sacrificing some of the other.
Statement 2 is incorrect: The PPF is a microeconomic tool for production analysis. Estimating government revenue and expenditure is the function of the Budget or Fiscal Policy.