The Production Possibilities Boundary Shows Possible Combinations of Guns and Butter

question 41

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 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

---

Definitions:

Present Value

A calculation that determines the current worth of a future sum of money or stream of cash flows, given a specified rate of return.

Usury Laws

Regulations governing the amount of interest that can be charged on a loan, intended to prevent lending at excessively high rates.

Nonmarket Rationing

Distribution of goods and services based on criteria other than price, such as need or merit.

Expected Rate of Return

The anticipated amount of profit or loss from an investment, considering the potential risks and rewards.