Question

Answer the question on the basis of the data given in the following production possibilities table. Production Possibilities (Alternatives) A B C D E F Capital Goods 5 4 3 2 1 0 Consumer Goods 0 5 9 12 14 15 Refer to the table. A total output of 3 units of capital goods and 4 units of consumer goods Multiple Choice is irrelevant because the economy is capable of producing a larger total output. will result in the maximum rate of growth available to this economy. would involve an inefficient use of the economy's scarce resources. is unobtainable in this economy.

Answer 1

The production possibility frontier is the locus of all combinations of goods and services that a country can produce with all the available resources. Any point inside the PPF denotes the inefficient use of resources. The PPF as given in the table is depicted below:

Therefore, X is an inefficient point.

Given the options:

• The economy can use larger output but the current output is not irrelevant.
• The maximum growth is possible if the economy uses its resources efficiently. That is by producing output combinations on the PPF line. X is inside PPF so this denotes inefficient use of resources and lower growth rate.
• Point X lies inside the PPF line and hence denotes inefficient use of resources.
• The point is obtainable because it lies inside the PPF and within production capacity.

Therefore, the correct option is: would involve an inefficient use ...... scarce resources.