In a certain economy, toys and greeting cards are produced, and the economy currently operates on its production possibilities frontier. Which of the following events would allow the economy to produce more toys and more greeting cards, relative to the quantities of those goods that are being produced now?
a. The economy experiences economic growth.
b. There is a technological advance in the toy industry, but the greeting card industry experiences no such advance.
c. There is a technological advance in the greeting card industry, but the toy industry experiences no such advance.
d. All of the above are correct.
The correct answer and explanation is :
The correct answer is:
a. The economy experiences economic growth.
Explanation:
A Production Possibilities Frontier (PPF) represents the maximum possible output combinations of two goods (toys and greeting cards) that an economy can produce, given its available resources and technology. If the economy is already operating on its PPF, it means that resources are fully employed and efficient production is taking place.
To produce more of both goods (toys and greeting cards), the entire PPF must shift outward. This can only happen through economic growth, which is why option (a) is correct. Economic growth can be achieved through:
- Increase in Resources – More labor, capital (factories, machines), or natural resources would allow for greater production.
- Technological Advancements – Innovations that improve production efficiency across multiple industries can increase overall output.
- Education and Training – A more skilled workforce enhances productivity in all sectors.
Options (b) and (c) are incorrect because they describe technological advancements in only one sector. If the toy industry experiences a technological advance, it may produce more toys, but greeting card production remains the same. Similarly, if only the greeting card industry improves, toy production does not increase. These scenarios would cause a rotation of the PPF rather than an outward shift.
Therefore, economic growth (option a) is the only way for the economy to produce more of both toys and greeting cards simultaneously.