Question

According to the classical school, the economy is situated ________ production possibilities frontier implying an ________ opportunity cost.

A) Inside; increasing
B) On; increasing
C) Outside; decreasing
D) Inside; decreasing

Answer 1

According to the classical school, the economy is situated inside the production possibilities frontier implying an increasing opportunity cost. The option (A) is correct.

Step-by-step explanation:

According to the classical school of economics, the economy is situated inside the production possibilities frontier implying an increasing opportunity cost. The law of increasing opportunity cost states that as the production of a good or service increases, the marginal opportunity cost of producing it also increases. This happens because some resources are better suited for producing certain goods and services instead of others.

For example, as more resources are allocated to education, the opportunity cost of producing healthcare increases. This is reflected in the outward-bending shape of the production possibilities frontier. Therefore, option (A) is correct.