Final answer:
The production possibilities frontier (PPF) shows the maximum output combinations of two goods that an economy can produce given its resources and technology. It illustrates the trade-off between producing more of one good at the expense of producing less of the other. Productive efficiency is achieved when the economy is producing at a point on the PPF curve, while allocative efficiency is achieved when the economy is producing the combination of goods that maximizes societal satisfaction.
Step-by-step explanation:
The production possibilities frontier (PPF) shows the maximum output combinations of two goods that an economy can produce given its resources and technology. It illustrates the trade-off between producing more of one good at the expense of producing less of the other. In this case, the PPF is graphed with environmental quality on the horizontal axis and the quantity of economic output on the vertical axis.
b) Productive efficiency is achieved when the economy is producing at a point on the PPF curve. This means that resources are fully utilized and there is no wastage. In the graph, any point on the PPF curve represents productive efficiency.
c) Allocative efficiency is achieved when the economy is producing the combination of goods that maximizes societal satisfaction. In other words, it is producing the mix of goods that society desires the most. On the PPF graph, allocative efficiency occurs at the point where the PPF curve is tangent to the indifference curve representing societal preferences.
d) In the choice between K and L, it is not possible to determine which one is better without additional information. The graph only shows the trade-off between environmental quality and economic output, but the values and preferences of society play a role in determining what is considered better.
e) Similarly, in the choice between K and N, it depends on the values and preferences of society. The graph shows a different trade-off between environmental quality and economic output compared to choice K, but whether it is better or worse depends on societal preferences.
f) If we had to guess, choice L is more likely to represent a command-and-control environmental policy, while choice M is more likely to represent a market-oriented environmental policy. This is because in choice L, the government appears to have more control in regulating the trade-off between gunk reduction and economic output, while in choice M, the market forces of supply and demand seem to play a bigger role.