If production in the economy is efficient,then changes in market prices

Question

Quizplus · Accepted Answer

When production is efficient, the economy is operating at a point on the production possibilities curve (PPC). Any changes in market prices will lead to a change in the relative profitability of different goods, and firms will shift their production towards the more lucrative goods. This movement along the PPC reflects a reallocation of resources towards the production of the higher-priced goods, but does not indicate an increase in the overall level of production or a change in the productive capacity of the economy. Therefore, changes in market prices will move us along the edge of the PPC, rather than shifting the entire curve upwards or downwards.

If Production in the Economy Is Efficient,then Changes in Market