The production possibilities frontier demonstrates the basic economic principle that:
A) economies are always efficient.
B) assuming full employment, supply will always determine demand.
C) assuming full employment, an economy is efficient only when the production of capital goods in a particular year is greater than the production of consumption goods in that year.
D) assuming full employment, to produce more of any one thing, the economy must produce less of at least one other good.

Question

Quizplus · Accepted Answer

The production possibilities frontier shows the maximum combinations of two goods that can be produced with the resources and technology available in an economy. Assuming full employment, to produce more of any one good, the economy must shift resources away from the production of another good, meaning that both goods cannot be produced at their maximum potential. This demonstrates the principle of opportunity cost, which is the cost of giving up the next best alternative when making a decision. Therefore, choice D is the correct answer.

The Production Possibilities Frontier Demonstrates the Basic Economic Principle That