If an economy is operating inside its production possibilities curve for consumer goods and capital goods, it
A) can only produce more consumer goods by producing fewer capital goods.
B) can only produce more capital goods by producing fewer consumer goods.
C) can produce more of both consumer goods and capital goods by using resources that are currently idle.
D) must improve its technology to produce more output.

Question

Quizplus · Accepted Answer

If an economy is operating inside its production possibilities curve for consumer goods and capital goods, it means that it is not utilizing all of its resources to produce goods. Therefore, it can produce more of both consumer goods and capital goods by using idle resources. However, if the economy is producing on its production possibilities curve, any increase in production of one good can only come at the cost of producing less of the other good. Therefore, options A and B are incorrect. Option D may be a potential solution in the long run, but it does not address the current situation of operating inside the production possibilities curve.

If an Economy Is Operating Inside Its Production Possibilities Curve