In a certain economy, jam and bread are produced, and the economy currently operates on its production possibilities frontier. Which of the following events would allow the economy to produce more jam and more bread, relative to the quantities of those goods that are being produced now?
a. Unemployed labor is put to work producing jam and bread.
b. The economy puts its idle capital to work producing jam and bread.
c. The economy experiences economic growth.
d. All of the above are correct.
The correct answer and explanation is :
The correct answer is:
c. The economy experiences economic growth.
Explanation:
The economy is currently operating on its Production Possibilities Frontier (PPF), meaning it is using all available resources efficiently. The PPF represents the maximum possible output combinations of two goods—in this case, jam and bread—given the economy’s resources and technology.
Analysis of the Answer Choices:
- (a) Unemployed labor is put to work producing jam and bread:
This would allow the economy to produce more of both goods only if it were previously inside the PPF due to unemployment. However, since the economy is already on the PPF, all resources are fully employed, and no additional output can be generated just by reallocating labor. - (b) The economy puts its idle capital to work producing jam and bread:
Similar to (a), idle capital (machines, factories) can only increase production if the economy were operating inside the PPF. However, the question states that the economy is already on the PPF, meaning all capital is already in use. Thus, using idle capital would not expand the PPF but rather move the economy from an inefficient point to an efficient one. - (c) The economy experiences economic growth:
Economic growth shifts the PPF outward, meaning the economy can produce more of both jam and bread. Growth can happen due to: - Technological advancements (e.g., better jam-making machines or more efficient bread ovens).
- An increase in resources (e.g., more workers, more farmland, better-quality capital).
- Improvements in human capital (e.g., better-trained workers).
Since economic growth expands the PPF, it is the only choice that allows the economy to produce more jam and more bread simultaneously. Thus, the correct answer is (c).