FIGURE 12- 2 the Production Possibilities Boundary Shows Possible Combinations

question 28

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 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.Is this output of guns and butter allocatively efficient?

• A)No,because the marginal cost to producers of the butter produced is more than the marginal value to consumers.
• B)Yes,because the marginal cost of producing the butter equals the marginal value of consuming the butter.
• C)No,because the marginal costs for guns and butter are not equated.
• D)No,because the marginal value to consumers of the butter produced is greater than the marginal cost to producers.
• E)Yes,because all points on the production possibilities boundary are allocatively efficient.

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