Question

In which of the following cases is productive efficiency not satisfied? Assume we start at a point on the PPF between two products. Select the correct answer below: The economy switches to producing less of one product without increasing the production of the other product. The economy switches to producing at the point of intersection of the PPF and the vertical axis. The economy switches to producing more of one product and less of the other product but remains on the PPF. The economy switches to producing at the point of intersection of the PPF and the horizontal axis.

Answer 1

A. The economy switches to producing less of one product without increasing the production of the other product

Explanation:

PPC is the graphical representation of product combinations that an economy can produce, given resources & technology. It is downward sloping because given resources & technology, production of a good can be increased by decreasing production of other good.

It is based on assumption that resources are efficiently utilised. Points on PPC show resources efficient utilisation, Points under PPC show under utilisation, Points outside PPC are beyond country's productive capacity.

If country produces less of a good without increasing production of other goods, implying wasted resources & production below PPC. This case doesn't satisfy productive efficiency

Other cases : Producing more of a good & less of other is just re allocative movement on the PPC itself. Production point at PPF intersection with either axis implies economy is producing only the good on that axis.

In all the cases except A. satisfy the 'productive efficiency'