Consider the following statements and choose the correct option:

Question

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.

1. A. Only Statement 1 is correct (Correct answer)
2. B. Only Statement 2 is correct
3. C. Both Statement 1 and Statement 2 are correct
4. D. Neither Statement 1 nor Statement 2 is correct

Correct Answer

Option A — Only Statement 1 is correct

Detailed Solution & Explanation

The correct answer is Only Statement 1 is correct.

Key Points

• Statement 1 ✓ — the Production Possibility Frontier (PPF) shows the trade-offs and opportunity costs an economy faces when splitting limited resources between two goods; it illustrates scarcity, efficiency and growth.
• Statement 2 ✗ — the PPF says nothing about government revenue or expenditure; those belong to fiscal policy and public finance, a different branch of economics.
• Watch for statements that graft an unrelated (but plausible-sounding) function onto a correct concept — that is the standard two-statement trap.