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Economic Systems and Production Possibility Curves: Question 1

Syllabus 1.5

Multiple choice AS 1 mark

An economy produces only two goods, timber and furniture, using all of the factors of production currently available to it and the most efficient technology it currently has. A newspaper report claims that, next year, without any new resources or new technology becoming available, this economy could produce more timber without producing any less furniture than it does now.

Which position on the economy's production possibility curve (PPC) for timber and furniture is most consistent with this claim?

Choose an answer to check it, then compare with the worked solution below.
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Worked solution

Step 1: Recall what each position on a PPC represents

A production possibility curve (PPC) shows the maximum combinations of two goods an economy can produce with a fixed amount of resources and a fixed level of technology.

  • A point on the curve means resources are fully and efficiently employed (productive efficiency): to get more of one good, some of the other must be given up.
  • A point inside the curve means some resources are unemployed, or are not being used to their full productive potential. More of both goods could be produced simply by putting these resources to work.
  • A point beyond the curve is currently unattainable with the resources and technology the economy has right now.
  • Reaching a completely new, larger set of attainable combinations requires an outward shift of the whole curve, driven by economic growth (e.g. more resources, or better technology), not just a change in how existing resources are used.

Step 2: Match the claim to a position

The claim states that, using the same resources and same technology (no new resources, no new technology mentioned), the economy could produce more timber without giving up any furniture. This is only possible if some resources are currently sitting idle, or are being used in a way that is not fully productive, the classic sign of a point inside the PPC.

Why the other options are wrong

  • A (on the PPC): on the curve, producing more timber would require giving up some furniture, but the claim says furniture output would not fall.
  • C (beyond the PPC): a point beyond the curve is impossible given current resources and technology, which is the opposite of what the claim describes.
  • D (only after an outward shift): a shift of the whole PPC needs new resources or new technology, but the claim explicitly says none of these change. Only how fully the existing resources are used changes.

Final answer

  • The claim is most consistent with the economy currently operating at a point inside its PPC, option B.