Question

What is the meaning of the X​- and Y​-intercepts? A. These points demonstrate an inefficient use of resources. B. These points show the preferred amount of goods X and Y that a society will produce. C. These are the limits of production if all resources are used to produce only one good. D. These are the limits of production if all resources are used to produce both goods. Suppose the economy produced at a point inside the PPF. Why would an economy produce at this​ point? A. Inefficient production at full employment. B. Lack of the best possible technology. C. Unemployment or underemployment. D. All of the above. Suppose you succeeded in lifting your economy to a point on its PPF. What point would you​ choose? How might your small society decide the point at which it wanted to​ be? A. This depends on the value the society places on necessities and luxuries. B. The society will choose a combination that includes more luxuries than necessities. C. The society will choose a combination that includes the same amount of necessities and luxuries. D. A and C only.

Answer 1

• What is the meaning of the X​- and Y​-intercepts?

C) These are the limits of production if all resources are used to produce only one good.

When the production possibilities frontier (PPF) intersects the X or Y axis, it shows the maximum output level if all the resources are used to produce only one good.

• Why would an economy produce at this​ point?

D) All of the above.

When an economy is producing at either intersection point (X or Y), it is usually not because of extreme specialization but rather due to failures or negative factors that prevent the production of the other good. Employment failures that lead to an ineffective allocation of labor or capital deficiencies which result in an ineffective allocation of capital resources (including technology).

• Suppose you succeeded in lifting your economy to a point on its PPF. What point would you​ choose? How might your small society decide the point at which it wanted to​ be?

A) This depends on the value the society places on necessities and luxuries.

The theory behind the PPF not only applies to economies, it also applies to consumers and the consumption possibilities frontier (CPF). Consumers decide what products to buy depending on how they want to satisfy their needs, either by purchasing products that satisfy basic necessities or purchasing luxury products.