An economy might operate inside its production-possibility frontier for all but one of the following reasons.Which one is not valid?
A)Changes in the business cycle.
B)Unemployment.
C)Political upheaval.
D)Defense production.
E)Failure of the price mechanism.

Question

Quizplus · Accepted Answer

Defense production is a valid reason for an economy to operate outside its production-possibility frontier, as it represents a decision to allocate resources towards national defense rather than civilian goods and services. The other options (changes in the business cycle, unemployment, political upheaval, and failure of the price mechanism) can all limit an economy's ability to operate at its maximum potential and therefore lead to operating inside the production-possibility frontier.

An Economy Might Operate Inside Its Production-Possibility Frontier for All