The production possibilities curve illustrates the basic principle that
A)an economy's capacity to produce increases in proportion to its population.
B)if all resources of an economy are in use, more of one good can be produced only if less of another is produced.
C)an economy will automatically seek that output at which all of its resources are employed.
D)no opportunity cost exists in production.

Question

Quizplus · Accepted Answer

The production possibilities curve shows the maximum combinations of two goods that can be produced with the available resources. It also illustrates the trade-offs that exist between producing one good versus the other. This means that if an economy is already producing at the maximum capacity, producing more of one good can only be achieved by sacrificing some production of the other. Therefore, choice B is correct because the production possibilities curve represents the principle of opportunity cost.

The Production Possibilities Curve Illustrates the Basic Principle That