The Production Possibilities Boundary Shows Possible Combinations of Guns and Butter

question 22

Multiple Choice

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.
FIGURE 12-2
-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 b) on the production possibilities boundary, producing Q1 units of butter. We can say that this economy is efficient because .

• A) allocatively; guns and butter are both produced to the point where the marginal cost to producers equals the marginal value to consumers
• B) productively; the marginal cost of production across guns and butter is equated
• C) allocatively; the price of guns is equal to the price of butter
• D) productively; the economy is operating at a point inside the production possibilities boundary
• E) allocatively; the economy is operating at a point on the production possibilities boundary

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Definitions:

Constant Rate

A fixed rate, without variation or fluctuation over time.

Dividends

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Constant Growth Model

A method to value a stock by assuming that dividends grow at a constant rate indefinitely.

Dividend Yield

The ratio of a company's annual dividend payments to its share price, indicating the earning potential from dividends for investors.