-Refer to the production possibility graph above.Assume that the economy is in equilibrium at point e.If a war reduces the country's capital stock by 40%,the new equilibrium is most likely to be
A) point b.
B) point h.
C) point f.
D) point d.
E) point e.

Question

-Refer to the production possibility graph above.Assume that the economy is in equilibrium at point e.If a war reduces the country's capital stock by 40%,the new equilibrium is most likely to be
A) point b. 
B) point h. 
C) point f. 
D) point d. 
E) point e.

Quizplus · Accepted Answer

A reduction in capital stock will shift the production possibility frontier inward, resulting in a new equilibrium at a point with lower output of both goods. Point b represents this new equilibrium.

-Refer to the Production Possibility Graph Above