FIGURE 23-3 Refer to Figure 23-3.Which of the following statements best describes the supply side of Economy B?
A)Unit costs are rising rapidly,but firms can produce more output by employing standby capacity and overtime labour,for example,with no increase in the price level.
B)Firms are producing well below their capacity and are willing to produce more only if prices rise.
C)Unit costs are rising rapidly as firms are producing beyond their capacity.Firms will produce more only if prices increase.
D)Firms are producing well below their capacity and are willing to produce more output with no increase in price.
E)Firms are not able to produce more output because there is no excess capacity in the economy.

Question

FIGURE 23-3 Refer to Figure 23-3.Which of the following statements best describes the supply side of Economy B?
A)Unit costs are rising rapidly,but firms can produce more output by employing standby capacity and overtime labour,for example,with no increase in the price level. 
B)Firms are producing well below their capacity and are willing to produce more only if prices rise. 
C)Unit costs are rising rapidly as firms are producing beyond their capacity.Firms will produce more only if prices increase. 
D)Firms are producing well below their capacity and are willing to produce more output with no increase in price. 
E)Firms are not able to produce more output because there is no excess capacity in the economy.

Quizplus · Accepted Answer

The graph shows that Economy B is operating at a level of output below potential GDP, indicating that firms are producing well below their capacity. However, there is no indication of rising unit costs or production beyond capacity, nor is there mention of inability to produce more due to lack of excess capacity. The graph also shows no increase in price level as output increases, indicating that firms are willing to produce more output with no increase in price. Therefore, the best description is that firms are producing well below their capacity and are willing to produce more output with no increase in price, which corresponds to choice D.