An economy may be operating at a point inside the production possibilities curve if:

Question

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If there is a substantial amount of labor unemployed (B) or a substantial amount of machinery idle (C), it means that there is unused capacity in the economy. This unused capacity indicates that the economy is not producing at its full potential and is operating inside the production possibilities curve. Technological progress enabling the economy to produce quantities of output otherwise unattainable (A) would shift the production possibilities curve outward, allowing the economy to produce at a higher level of output.

An Economy May Be Operating at a Point Inside the Production