Question

On a production possibilities curve, a change from economic inefficiency to economic efficiency is obtained by a. movement along the curve. b. movement from a point outside the curve to a point on the curve. c. movement from a point inside the curve to a point on the curve. d. a change in the slope of the curve.

Short answer

The correct answer to the question, "On a production possibilities curve, a change from economic inefficiency to economic efficiency is obtained by", is (c) Movement from a point inside the curve to a point on the curve. This is because this movement represents resources being utilized more efficiently, shifting from economic inefficiency to economic efficiency.

Step-by-step solution

Option A: Movement along the curve

Moving along the curve represents different combinations of two goods or services that can be produced with given resources and technology, assuming full employment of resources and maximum efficiency. This does not depict how a change from economic inefficiency to economic efficiency occurs.

Option B: Movement from a point outside the curve to a point on the curve

A point outside the production possibilities curve represents an unattainable production level with given resources and technology. So, this option does not represent a shift from economic inefficiency to economic efficiency.

Option C: Movement from a point inside the curve to a point on the curve

A point inside the production possibilities curve indicates that resources are not being fully employed or utilized efficiently (i.e., economic inefficiency). Moving from a point inside the curve to a point on the curve shows that resources are now being utilized efficiently (i.e., economic efficiency). Thus, this option correctly represents the shift from economic inefficiency to economic efficiency.

Option D: A change in the slope of the curve

A change in the slope of the curve indicates a change in the opportunity cost between the two goods or services being produced. It does not necessarily represent a shift from economic inefficiency to economic efficiency. So, the correct answer is: c. Movement from a point inside the curve to a point on the curve.

Key concepts

Economic Efficiency

Economic efficiency occurs when the resources of an economy are used optimally, producing the maximum possible goods and services without any wastage. Think of it as getting the most out of what you have. Imagine a chef with a given amount of ingredients cooking the best meal possible. Every ingredient is used without anything going to waste.

On a production possibilities curve, which represents different combinations of two goods that can be produced with given resources, a point on the curve signifies this optimal use of resources. This is because at any point on the curve:

• All available resources are fully employed.
• There's no waste or idle resources.
• You cannot produce more of one good without producing less of another.

Achieving economic efficiency means the economy is working at its best, maximizing output and thereby benefiting society as a whole.

Economic Inefficiency

Economic inefficiency is when an economy is not utilizing its resources to their fullest potential. On a production possibilities curve, this is represented by any point inside the curve. Here's why it occurs:

• Resources might be underused or idle.
• Some resources might not be used at all due to poor management.
• Production processes might be outdated or not well-organized.

As a result, the economy operates below its potential, like having plenty of ingredients yet cooking a much smaller, less satisfying meal than possible.

To move from inefficiency towards efficiency, improvements need to be made, so that resources are fully utilized, shifting the production point from inside the curve to somewhere on the curve. Changes can include better technology, improved labor skills, or more effective management practices. This shift means making more goods and services available, leading to greater economic well-being.

Resource Allocation

Resource allocation is about deciding how to distribute scarce resources in an economy to ensure they are used in the best possible way. Every economy has limited resources, and the production possibilities curve helps visualize these limitations and potential trade-offs.

When resources are allocated effectively, it means:

• The right proportions of goods and services are being produced.
• Consumer needs and wants are being met as efficiently as possible.
• There's a balance between different kinds of goods, like balancing the number of cars and buses produced considering what the society needs more.

Poor resource allocation can lead to economic inefficiency. Imagine a bakery making only cakes while there's a high demand for bread. The bakery would be underutilizing its potential to serve its customers.

The goal of effective resource allocation is to navigate the limitations indicated by the production possibilities curve and steer the economy toward points on or near the curve, ensuring resources are put to their best use.