Suppose an economy produces two goods: clothes and cars. This economy always operates on its production possibilities frontier. Last year, it produced 91 units of clothes and 48 cars. This year, it is producing 95 units of clothes and 51 cars. Which of the following would NOT explain the increase in output?

Question

Quizplus · Accepted Answer

Since the economy is always operating on its production possibilities frontier, any increase in output must be due to factors that shift the frontier outward, such as an increase in the labor force, an improvement in technology, or an increase in worker productivity. A reduction in unemployment would not explain the increase in output in this context because the economy is already operating at full capacity.

Suppose an Economy Produces Two Goods: Clothes and Cars