Figure 2-3 shows the production possibilities curve of an economy in the production of food and clothing. If the economy operates at Point A on the production possibilities curve shown above, then:Figure 2-3
A)it cannot increase its output of food.
B)it cannot increase its output of clothing.
C)it cannot simultaneously increase its output of both food and clothing.
D)it is not utilizing its resources inefficiently.
E)it cannot decrease its output of food.

Question

Figure 2-3 shows the production possibilities curve of an economy in the production of food and clothing. If the economy operates at Point A on the production possibilities curve shown above, then:Figure 2-3 
A)it cannot increase its output of food. 
B)it cannot increase its output of clothing. 
C)it cannot simultaneously increase its output of both food and clothing. 
D)it is not utilizing its resources inefficiently. 
E)it cannot decrease its output of food.

Quizplus · Accepted Answer

The production possibilities curve shows the maximum combinations of two goods that an economy can produce with its given resources and technology. Point A on the curve represents a particular combination of food and clothing that the economy is currently producing. Since Point A lies on the curve itself and not inside the curve (inefficient) or outside the curve (unattainable), it means that the economy is utilizing all its resources efficiently. However, if the economy wants to increase its output of one good (e.g. food), it would have to reduce its output of the other good (e.g. clothing) and vice versa. Therefore, it cannot simultaneously increase its output of both food and clothing. Hence, choice C is the correct answer.

Figure 2-3 Shows the Production Possibilities Curve of an Economy