Underutilisation of resources
Also called: Point inside the PPF, underemployment of resources · Topic: Scarcity, Choice and Economic Systems · NCERT: Class 12, Ch 1 "Introduction (Microeconomics)"
Meaning
Underutilisation of resources means some of an economy's resources are idle or used wastefully. On a production possibility frontier (PPF), the curve showing the most two goods can yield when all resources are fully used, this appears as a point inside the curve. The economy then produces less of both goods than it could. Unemployment, idle factories and wasteful methods all put an economy inside its PPF.
Example
Suppose an economy can produce 2 units of corn and 7 units of cotton when it uses all its resources fully. If some workers are jobless and it produces only 2 units of corn and 4 units of cotton, it is at a point inside the PPF. Using the idle resources could give it 3 more units of cotton without giving up any corn.
Don't confuse with
- Outward shift of the PPF: Putting idle resources back to work, for example by cutting unemployment, only moves the economy from inside the curve towards it. The curve itself moves outward only when resources grow or technology improves.
- Unattainable point: A point outside the PPF cannot be reached with present resources and technology. A point inside can be reached, but it wastes resources.
Related concepts
- Production possibility set
- Production possibility frontier
- Allocation of resources
- Efficient use of resources