Question

The economy moves from point A, where it produces 100 units of X and 200 units of Y, to point B, where it produces 200 units of X and 150 units of Y. It follows that

a)point A is a productive inefficient point.

b)point A may be a productive inefficient point.

c)point A may be a productive efficient point.

d)point B is a productive efficient point.

e)b and c

Answer 1

Since the production possibility can be defined as a line which is summation of different combinations of two different goods which can be produced with the available resources by using it efficiently. If the technology improves or resources increase, then the PPF shifts outwards.

Since all the points on the PPF, shows the efficient utilization of the resources and all the allocation on the PPF are best.

As it has been given that the economy moves from point A, where it produces 100 units of X and 200 units of Y, to point B, where it produces 200 units of X and 150 units of Y. It follows that point A may be a productive inefficient point.

This is because at point A economy produce ( 100 unit of X and 200 units of Y) but when it moves to point B, then it produces ( 200 unit of X and 150 units of Y). So it is better at point B compare to point A because the increase in the production of good X is more than the decrease in the production of good Y units. This is very high probability that point A may be inefficient and point B may be productive efficient. But it cannot be said surely about it.

Hence option b is the correct answer.

* I think in the option c, there must be Point B, then the answer will be (e)b and c.