All points on the PPF are points of ________ efficiency.When we produce at the point on the PPF that we prefer above all other points we achieve ________ efficiency.
A)production;allocative
B)allocative;allocative
C)allocative;production
D)unattainable;attainable
E)productive;prominent

Question

Quizplus · Accepted Answer

Points on the PPF represent maximum possible production levels using all available resources efficiently, hence they are points of production efficiency. However, not all points on the PPF are equally desirable from a consumer’s point of view – to achieve the most preferred combination of goods and services, society must allocate resources efficiently according to consumer preferences. Such an allocation is achieved at a point on the PPF where the marginal rate of substitution equals the slope of the PPF, termed as allocative efficiency. Therefore, all points on the PPF are points of production efficiency, but only the point on the PPF that maximizes consumer satisfaction represents allocative efficiency.

All Points on the PPF Are Points of ________ Efficiency