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Figure: Production Possibilities and Circular-Flow Diagram
-(Figure: Production Possibilities and Circular-Flow Diagram) Look at the figure Production Possibilities and Circular-Flow Diagram. Assume the two figures represent the same economy. Suppose that in the circular-flow diagram most firms undergo a significant increase in productivity. This results in a significant increase in the output of both coconuts and fish. If all other variables remain unchanged, then the adjustment in this economy would be best represented in the production possibilities figure by a movement from point A toward:
A)point A (no movement).
B)point B (a decrease in coconut production and an increase in fish production).
C)point C (a decrease in coconut production).
D)point D (an outward shift of the entire curve).

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Use the following to answer questions :
Figure: Production Possibilities and Circular-Flow Diagram 
-(Figure: Production Possibilities and Circular-Flow Diagram) Look at the figure Production Possibilities and Circular-Flow Diagram. Assume the two figures represent the same economy. Suppose that in the circular-flow diagram most firms undergo a significant increase in productivity. This results in a significant increase in the output of both coconuts and fish. If all other variables remain unchanged, then the adjustment in this economy would be best represented in the production possibilities figure by a movement from point A toward:
A)point A (no movement). 
B)point B (a decrease in coconut production and an increase in fish production). 
C)point C (a decrease in coconut production). 
D)point D (an outward shift of the entire curve).

Quizplus · Accepted Answer

An increase in productivity would lead to an increase in output of both coconuts and fish, meaning that the production possibilities curve would shift outward from point A. Therefore, the best representation of this adjustment would be a movement from point A toward point D, indicating an outward shift of the entire curve.

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