The production possibilities boundary shows possible combinations of guns and butter that can be produced by a country.The lower diagram shows demand and supply for butter. FIGURE 12-2
-Refer to Figure 12-2.Suppose demand and supply for butter are shown by D and S,respectively.And suppose the economy is at point (a)on the production possibilities boundary.How can this economy move toward allocative efficiency?
A)expand the production possibilities boundary outward
B)increase the supply of guns
C)increase the demand for butter
D)produce less butter,more guns
E)produce more butter,fewer guns

Question

The production possibilities boundary shows possible combinations of guns and butter that can be produced by a country.The lower diagram shows demand and supply for butter.  FIGURE 12-2
-Refer to Figure 12-2.Suppose demand and supply for butter are shown by D and S,respectively.And suppose the economy is at point (a)on the production possibilities boundary.How can this economy move toward allocative efficiency?
A)expand the production possibilities boundary outward 
B)increase the supply of guns 
C)increase the demand for butter 
D)produce less butter,more guns 
E)produce more butter,fewer guns

Quizplus · Accepted Answer

Allocative efficiency occurs when the economy is producing at a point on the production possibilities boundary that is on the same indifference curve as the consumers. In this case, the economy is at point (a) on the production possibilities boundary, but it is not necessarily allocatively efficient.

To move toward allocative efficiency, the economy would need to produce more butter and fewer guns, which is represented by a movement along the production possibilities boundary toward point (b). This could be achieved by choosing option E, which involves producing more butter and fewer guns.

The Production Possibilities Boundary Shows Possible Combinations of Guns and Butter