Exhibit 2-7 Production possibilities curve
-For the economy shown in Exhibit 2-7, which of the following is true when the economy is at point A?

Question

Exhibit 2-7 Production possibilities curve 
-For the economy shown in Exhibit 2-7, which of the following is true when the economy is at point A?

Quizplus · Accepted Answer

At point A on the production possibilities curve, the economy is producing more cars than grain. In order to produce more grain, some car production must be forgone. This is because the economy is operating at its maximum efficiency given its resources and technology, and any reallocation of resources towards grain production will necessarily involve giving up some car production. Therefore, Option C is the correct answer. Option A is incorrect because the economy may still have a demand for cars that matches its current level of production. Option B is incorrect because the economy is already producing at its maximum efficiency, meaning that all resources are being utilized fully. Option D is incorrect because the production possibilities curve allows for increased production of either good, depending on the reallocation of resources.

Exhibit 2-7 Production Possibilities Curve