Question

Before the Covid crisis, economists considered that the US economy was at “full employment.” Using the PPF model discussed in Chapter 2, it would be most appropriate to represent the pre-Covid US economy as A) a point inside the PPF B) a point outside the PPF C) A point on the PPF D) a point where the PPF intersects the horizontal axis E) a point where the PPF intersects the vertical axis

Answer 1

Answer) (C) A point on the PPF

EXPLANATION:

PPF (Production Possibility Frontier) is a curve which shows various combinations of the amounts of two goods which can be produced within the given resources and technology. A PPF explains several economic concepts, such as allocative efficiency, economies of scale, opportunity cost (or marginal rate of transformation), productive efficiency, and scarcity of resources (the fundamental economic problem that all societies face).

When there is full employment, it means the economy is using all its resources effectively and efficiently and thus is producing on PPF.

On the other hand, a point would lie inside the PPF if the economy is under-utilising its resources and a point outside the PPF is not achievable in the short run. It can be achieved only if the economy's resources or technology increases.

Thus, when the economists say that before the Covid crisis, the US economy was at “full employment", so it would be most appropriate to represent the pre-Covid US economy as A POINT ON THE PPF.