Which of the following statements about the Production Possibilities Frontier (PPF) is true?

• A. Points on the PPF represent combinations of goods that are produced with maximum efficiency.
• B. Points outside the PPF are attainable with current resources and technology.
• C. The PPF is always a straight line, indicating constant opportunity costs.
• D. Points inside the PPF indicate that all resources are being used efficiently.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand what the Production Possibilities Frontier (PPF) represents. The PPF shows the maximum possible combinations of two goods that an economy can produce given its resources and technology.
2. Step 2: Analyze points on the PPF. Points on the curve represent combinations where resources are fully and efficiently utilized, meaning the economy is producing at its maximum potential without waste.
3. Step 3: Consider points outside the PPF. These points represent combinations that are currently unattainable with the existing resources and technology, as they require more than what is available.
4. Step 4: Examine points inside the PPF. These points indicate that resources are not being used efficiently, as the economy could produce more of one or both goods without sacrificing anything.
5. Step 5: Understand the shape of the PPF. The PPF is typically bowed outwards (concave) due to increasing opportunity costs, not always a straight line. A straight line would imply constant opportunity costs, which is a special case.