Given below is a production possibility schedule showing different quantities of two commodities – Cars and Computers which can be produced in an economy.
|
Cars |
Computers |
|
|
A. |
150 |
10 |
|
B. |
140 |
20 |
|
C. |
120 |
30 |
|
D. |
90 |
40 |
If an economy is operating on the Production Possibility Curve and we allocate more resources for production of computers (with fixed amount of resources available), what will it lead to?
Answer & explanation
Correct answer: option 1
If an economy is operating on the Production Possibility Curve (PPC) and more resources are allocated for the production of computers (with a fixed amount of resources available), it will lead to: Option 1: Movement along the Production Possibility Curve.
Explanation:
- When an economy is operating on the PPC, it means that it is utilizing all its resources efficiently to produce a combination of cars and computers.
- If more resources are allocated to the production of computers without increasing the total amount of resources available, it will lead to a reallocation of resources from the production of cars to the production of computers.
- This reallocation of resources will result in an increase in the production of computers and a decrease in the production of cars, while still operating on the same PPC.
- Therefore, the economy will move along the PPC, as it adjusts its production levels in response to changes in resource allocation.