Using Figure 1.5, if an economy has the capacity to produce represented by PP2, then point E represents
A) A constant trade-off between potato chips and doughnuts.
B) A combination of potato chips and doughnuts that is not attainable.
C) An efficient use of resources.
D) None of the choices are correct.

Question

Using Figure 1.5, if an economy has the capacity to produce represented by PP2, then point E represents
A) A constant trade-off between potato chips and doughnuts. 
B) A combination of potato chips and doughnuts that is not attainable. 
C) An efficient use of resources. 
D) None of the choices are correct.

Quizplus · Accepted Answer

Point E represents an efficient use of resources because it is on the production possibilities frontier (PPF) which shows all the possible combinations of goods that can be produced using the economy's available resources. Any point on the PPF indicates an efficient use of resources. Points outside the PPF are not attainable, and points inside the PPF imply that the resources are not being used efficiently.