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CA Foundation · Business Economics · Nature and Scope of Business Economics

An economy is operating at a point strictly inside its production possibility curve, with many workers unemployed. Which of the following statements is correct?

A point inside the production possibility curve means resources are underutilised or inefficiently used. The economy can therefore raise output of one or both goods without giving up the other by employing idle resources. An outward shift of the curve is required only to reach points beyond it.

  1. AThe economy can produce more of one good without reducing the other, by employing idle resourcesCorrect
  2. BThe economy is using its resources efficiently and cannot gain further
  3. CThe point is unattainable given present resources and technology
  4. DThe production possibility curve must shift outward for any increase in output

Explanation

A point inside the PPC shows underutilisation of resources such as unemployed labour. Output of one or both goods can rise without sacrificing the other by using idle resources. An outward shift is needed only to go beyond the curve, so the last option is wrong.

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