Suppose that a fully employed economy produces only two goods, hamburgers and flat-panel TVs. If the economy is currently producing more than the optimal quantity of hamburgers, then to attain the optimal allocation of resources, it should
A) produce more hamburgers and fewer TVs.
B) produce more TVs and fewer hamburgers.
C) produce more of both goods.
D) produce fewer of both goods.

Question

Quizplus · Accepted Answer

If the economy is producing more than the optimal quantity of hamburgers, it means that the marginal benefit of producing additional hamburgers is less than the marginal benefit of producing additional flat-panel TVs. Therefore, the economy should shift its resources from producing more hamburgers to producing more flat-panel TVs, resulting in a decrease in hamburger production and an increase in flat-panel TV production. This will lead to the optimal allocation of resources where the marginal benefit of the last unit of each good produced is equal. Thus, the best choice is to produce more flat-panel TVs and fewer hamburgers.

Suppose That a Fully Employed Economy Produces Only Two Goods