The production possibilities boundary shows possible combinations of guns and butter that can be produced by a country. The lower diagram shows demand and supply for butter. FIGURE 12- 2
-Refer to Figure 12- 2. Suppose demand and supply for butter are shown by D and S, respectively. And suppose the economy is at point (a) on the production possibilities boundary. How can this economy move toward allocative efficiency?
A) produce more butter, less guns.
B) increase the demand for butter.
C) produce less butter, more guns.
D) expand the production possibilities boundary outward.
E) increase the supply of guns.

Question

The production possibilities boundary shows possible combinations of guns and butter that can be produced by a country. The lower diagram shows demand and supply for butter.  FIGURE 12- 2
-Refer to Figure 12- 2. Suppose demand and supply for butter are shown by D and S, respectively. And suppose the economy is at point (a) on the production possibilities boundary. How can this economy move toward allocative efficiency?
A) produce more butter, less guns. 
B) increase the demand for butter. 
C) produce less butter, more guns. 
D) expand the production possibilities boundary outward. 
E) increase the supply of guns.

Quizplus · Accepted Answer

Point (a) is not at the point of allocative efficiency because it is producing more guns than butter, which means it is not producing the goods that consumers demand the most. To move toward allocative efficiency, the country should produce more of the good that is in higher demand, which is butter in this case. Therefore, the country can move toward allocative efficiency by producing more butter and less guns, shifting closer to point B on the production possibilities boundary.

The Production Possibilities Boundary Shows Possible Combinations of Guns and Butter