The production possibilities curve illustrates that:
A “If society is efficient, it can produce more of one good only if it reduces output of another good.
B There are no opportunity costs in a wealthy economy.
C Constant opportunity costs always exist.
D Society can always produce more of all goods simultaneously.
The Correct Answer and Explanation is :
Correct Answer: A
“If society is efficient, it can produce more of one good only if it reduces output of another good.”
Explanation:
The production possibilities curve (PPC), also known as the production possibilities frontier (PPF), is a graphical representation of the maximum possible combinations of two goods or services that can be produced with available resources and technology, assuming full efficiency.
Key Insights:
- Scarcity and Trade-offs:
The PPC reflects the concept of scarcity—resources are limited, so choices must be made about how to allocate them. If society is operating on the PPC, all resources are being used efficiently. To produce more of one good, resources must be shifted away from producing another, leading to a decrease in its output. This demonstrates the trade-off inherent in decision-making. - Opportunity Cost:
Opportunity cost is the value of the next best alternative forgone. The PPC shows this visually, as moving from one point to another on the curve entails giving up some amount of one good to produce more of the other. - Why Option A is Correct:
If society is efficient (operating on the curve), it cannot increase the production of one good without reducing the output of the other. This principle stems directly from the concept of opportunity cost. For example, if an economy producing only wheat and cars wants more cars, it must reduce wheat production due to limited resources.
Why Other Options Are Incorrect:
- B: Opportunity costs exist in all economies, even wealthy ones. Resources are always limited relative to wants.
- C: Opportunity costs are not always constant. They typically increase as resources are reallocated, which explains the curve’s concave shape.
- D: Society cannot always produce more of all goods simultaneously unless new resources or technologies expand the PPC outward.
In summary, the PPC emphasizes that efficient resource use involves trade-offs, and these trade-offs are the foundation of opportunity costs.