Multiple Choice
In the context of allocative efficiency, how many points on a production possibilities frontier (PPF) illustrate the proper allocation of resources?
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0. Basic Principles of Economics
Allocative Efficiency, Productive Efficiency, and Equality
Multiple Choice
In the context of allocative efficiency, which of the following best describes the number of points on a production possibilities frontier (PPF) that illustrate the proper allocation of resources?
A
Only one point, where marginal benefit equals marginal cost
B
Any point inside the PPF
C
All points outside the PPF
D
All points on the PPF
Verified step by step guidance1
Understand that the Production Possibilities Frontier (PPF) represents all the efficient combinations of two goods that an economy can produce given its resources and technology.
Recognize that points on the PPF are efficient because resources are fully utilized, while points inside the PPF indicate inefficiency (underutilization of resources), and points outside the PPF are unattainable with current resources.
Recall that allocative efficiency occurs when the mix of goods produced represents the combination most desired by society, which happens where the marginal benefit (MB) of a good equals its marginal cost (MC).
Identify that among all points on the PPF, only one point corresponds to the allocation where MB equals MC, reflecting the optimal distribution of resources according to society's preferences.
Conclude that the correct description is that only one point on the PPF illustrates the proper allocation of resources, where marginal benefit equals marginal cost.
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