Question

Given below are two statements:
• [Statement (I):] If resources are not fully and efficiently utilized, then potential level of output will be less than actual level of output. 
• [Statement (II):] Production possibility curve refers to the minimum possible level of output attainable with the available resources. 
In light of the above statements, choose the most appropriate answer from the options given below. 
 

• A. Both Statement (I) and Statement (II) are correct.
• B. Both Statement (I) and Statement (II) are incorrect.
• C. Statement (I) is correct but Statement (II) is incorrect.
• D. Statement (I) is incorrect but Statement (II) is correct.

Hint:

To remember PPC concepts:
- On the PPC: Full and efficient resource utilization (\(\text{Actual} = \text{Potential}\)).
- Inside the PPC: Underutilization or inefficiency (\(\text{Actual} < \text{Potential}\)).
- Outside the PPC: Unattainable with current resources and technology.

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
The Production Possibility Curve (PPC) is a graphical representation of the maximum possible combinations of two goods that an economy can produce using all available resources and technology efficiently.

Step 2: Detailed Explanation:
Let us analyze both statements:
- Statement (I) is incorrect: The potential level of output represents the maximum limit an economy can produce when all its resources are fully and efficiently utilized.
If resources are underutilized or used inefficiently, the actual level of output will fall below this potential limit.
Therefore, the actual level of output will be less than the potential level of output.
Statement (I) states the reverse ("potential level of output will be less than actual"), which is logically impossible.
- Statement (II) is incorrect: By definition, the Production Possibility Curve (PPC) represents the maximum possible combinations of outputs that can be produced using available resources.
Points along the PPC curve represent efficient production at maximum capacity.
Points inside the curve represent inefficient production, while points outside the curve are unattainable with current resources.
The curve does not represent the "minimum" level of output.
Therefore, both statements are incorrect.

Step 3: Final Answer:
Both Statement (I) and Statement (II) are incorrect, matching Option (B).