If the economy is at point C on its Production Possibilities Frontier (PPF), which of the following statements is most likely true?

• A. The economy is operating efficiently, using all available resources.
• B. The economy is producing at a point that is unattainable with current resources.
• C. The economy is experiencing unemployment and underutilization of resources.
• D. The economy is not subject to opportunity costs.

Answer: (A)

Verified step by step guidance

1. Understand what the Production Possibilities Frontier (PPF) represents: it shows the maximum possible output combinations of two goods or services an economy can produce when all resources are fully and efficiently utilized.
2. Recognize that any point on the PPF curve, such as point C, indicates efficient use of resources because the economy is producing the maximum output possible given its resources and technology.
3. Identify that points inside the PPF represent inefficient production, where resources are underutilized or there is unemployment, and points outside the PPF are unattainable with current resources.
4. Recall that moving along the PPF involves opportunity costs, meaning producing more of one good requires producing less of another, so the economy is subject to opportunity costs at any point on the PPF.
5. Conclude that since point C lies on the PPF, the economy is operating efficiently, using all available resources, and the other statements about unattainability, underutilization, or absence of opportunity costs are incorrect.