Exhibit 2-1 Production Possibilities Curve Data -In Exhibit 2-1, the Opportunity Cost of Producing the Fourth

question 145

Multiple Choice

Exhibit 2-1 Production possibilities curve data $$\begin{array} { | c | c | } \hline \begin{array} { c } \text { Consumption } \\\text { Goods }\end{array} & \begin{array} { c } \text { Capital } \\\text { Goods }\end{array} \\\hline 10 & 0 \\9 & 1 \\7 & 2 \\4 & 3 \\0 & 4 \\\hline\end{array}$$
-In Exhibit 2-1, the opportunity cost of producing the fourth unit of capital is:

• A) 0.
• B) 1 unit of consumption goods.
• C) 2 units of consumption goods.
• D) 4 units of consumption goods.
• E) there is not enough information to estimate the opportunity cost.

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Definitions:

Pareto Optimal Allocations

A situation where no reallocation can make someone better off without making someone else worse off, named after economist Vilfredo Pareto.

Utility Function

A mathematical representation of a consumer's preference ordering over a set of goods and services. It quantifies the satisfaction or happiness derived from consuming these goods and services.

Trade

The action of buying, selling, or exchanging goods and services between people or entities.

Pareto Optimal Allocation

An allocation of resources in which it is impossible to make any individual better off without making at least one individual worse off, indicative of efficiency in resource distribution.