Refer to the accompanying diagram. If the production possibilities of an economy are shown by curve AB but the economy is operating at point 4, the reasons are most likely to be because of
A) supply and environmental factors.
B) demand and eﬃciency factors.
C) labor inputs and labor productivity.
D) technological progress.

Question

Refer to the accompanying diagram. If the production possibilities of an economy are shown by curve AB but the economy is operating at point 4, the reasons are most likely to be because of
A) supply and environmental factors. 
B) demand and eﬃciency factors. 
C) labor inputs and labor productivity. 
D) technological progress.

Quizplus · Accepted Answer

Point 4 indicates that the economy is not operating at its maximum potential, which suggests that there are inefficiencies in production. This could be due to factors such as lack of demand for certain goods and services or inefficiencies in the use of resources. Therefore, option B (demand and efficiency factors) is the most likely reason for operating at point 4. The other options (supply and environmental factors, labor inputs and labor productivity, and technological progress) do not fully explain why the economy is operating below its production possibilities frontier.

Refer to the Accompanying Diagram