FIGURE 12- 2 the Production Possibilities Boundary Shows Possible Combinations

question 82

Multiple Choice

FIGURE 12- 2 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.

-Refer to Figure 12- 2.Suppose this economy is allocatively efficient at Q1 units of butter.Now suppose there is an increase in demand for butter from D to D1.After this shift in demand,

• A)the marginal value to consumers of butter is less than the marginal cost to producers; the price of butter (relative to the price of guns)rises; the economy moves to output Q2 of butter and point (c)on the PPB.
• B)the price of guns (relative to the price of butter)rises and the economy moves to point (a)on the PPB.
• C)the marginal value to consumers of butter is greater than the marginal cost to producers; the price of butter (relative to the price of guns)rises; the economy moves to output Q2 of butter and point (c)on the PPB.
• D)the increase in the price of butter (relative to the price of guns)will cause the demand curve to shift back down to D and allocative efficiency will be maintained.
• E)the supply curve will shift up to S1 and allocative efficiency will be maintained.

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Definitions:

Long-Term Solutions

Strategies or answers to problems that are designed to be effective over an extended period, rather than quick fixes.

Task

A piece of work to be done or undertaken, often with a specific objective in mind.

Technology

The application of scientific knowledge for practical purposes, especially in industry.

Structure

The arrangement of and relations between the parts or elements of something complex, often referring to organizations or systems.