Basic economic problems, i.e. shortage and selection problems, and some central problems can be illustrated with the help of production potential curve.
(i) Problems of Shortage : It is rooted in all those combinations of those objects which are beyond the likelihood of productivity, such as the combination given by point D in the figures given in combination. Production possibilities obtain points outside the range of combinations that cannot be obtained because adequate resources are not available to produce. This is the only point in or within the probability curve of productipn, which are attainable, i.e. combination, which can be produced with available resources.
(ii) Problem of Choice : This indicates the need to choose from the available points on the production potential curve, such as the combination between combination A and B.
(iii) What is to be Created : The problem of production of two goods from any point on the production possibility is the problem of what to produce. Different points on the curve represent different combinations of two objects. Thus, if the society chooses combination A, it shows that it has decided to produce more guns and less butter. On the other hand, if it chooses combination B, it shows that more butter will be produced. At what point should either product be produced, depends on the taste and preferences of the people in the economy.
(iv) Problems of Full and Efficient Use of Resources : If all resources are used fully and efficiently, then the production possibility curve will be operative at some points. But if the economy is producing any combination within the probability curve of its production, such as point C, it would mean that some of its resources remain unutilised and only some of its resources are used in production. Through efficient and full use of resources, the economy can move beyond C and go to any point on the production prospect curve. For example, by transferring B, forgoing one or more units of butter can produce more guns.
