The correct option is 2 and 3 only.
Explanation
The Production Possibility Frontier (PPF), also known as the Production Possibility Curve (PPC), is a graphical representation showing the various combinations of two goods that an economy can produce when all available resources are fully and efficiently utilized, given a specific state of technology.
Statement-wise Analysis:
- Statement 1 is Incorrect. The fundamental property of the PPF is that it illustrates trade-offs. Because resources are fully utilized on the frontier, producing more of one good requires diverting resources away from the other. Therefore, the production of one good can only be increased by reducing the production of the other. This represents the concept of opportunity cost.
- Statement 2 is Correct. The existence of a "frontier" or limit is a direct consequence of scarcity. If resources were unlimited, there would be no boundary to production. The PPF assumes that the resources (factors of production) available to the economy are fixed and scarce.
- Statement 3 is Correct. The PPF is drawn under the assumption of ceteris paribus regarding technology. It assumes that the state of technology remains constant. If technology improves, the productive capacity increases, causing the entire PPF to shift outward.
Key Takeaway:
The Production Possibility Frontier defines the limits of production due to the scarcity of resources (Factors of Production) and constant technology, highlighting that on the curve, an increase in one commodity necessitates a decrease in another (Opportunity Cost).