Which of the following trade-offs does the production possibilities frontier (PPF) illustrate?

• A. The trade-off between current consumption and future investment
• B. The trade-off between fixed and variable costs in production
• C. The trade-off between producing more of one good and less of another due to limited resources
• D. The trade-off between price and quantity demanded

Answer: (C)

Verified step by step guidance

1. Understand that the Production Possibilities Frontier (PPF) is a curve that shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently utilized.
2. Recognize that the PPF illustrates the concept of opportunity cost, which means producing more of one good requires producing less of another due to limited resources.
3. Identify that the PPF does not directly represent trade-offs involving consumption versus investment, fixed versus variable costs, or price versus quantity demanded, as these relate to different economic concepts.
4. Focus on the trade-off between producing more of one good and less of another, which is the fundamental trade-off depicted by the PPF because resources are scarce and must be allocated between competing uses.
5. Conclude that the correct interpretation of the PPF trade-off is the opportunity cost of shifting resources from the production of one good to another, reflecting the limits imposed by scarce resources.