If an economy is operating on its production possibilities curve, production of more capital goods require that consumption be sacrificed.

Question

Quizplus · Accepted Answer

The production possibilities curve shows the maximum combinations of two goods that can be produced with available resources and technology. If an economy is operating on the PPC, its resources are being used efficiently. Any increase in the production of capital goods will require a decrease in the production of consumer goods, which means that consumption has to be sacrificed. In other words, the economy has to give up some immediate satisfaction (in the form of consumption) in order to invest in capital goods that will enable it to produce more in the future.

If an Economy Is Operating on Its Production Possibilities Curve