In the context of allocative efficiency, how many points on a production possibilities frontier (PPF) 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 on the PPF
• D. Any point outside the PPF

Answer: (A)

Verified step by step guidance

1. Understand that the Production Possibilities Frontier (PPF) represents the maximum possible output combinations of two goods that an economy can produce given its resources and technology.
2. Recognize that points on the PPF show efficient use of resources, meaning the economy is producing at its full potential without waste.
3. Recall that allocative efficiency occurs when resources are distributed in a way that maximizes the net benefit to society, which happens where the marginal benefit (MB) of a good equals its marginal cost (MC).
4. Identify that while all points on the PPF are productively efficient, only one specific point on the PPF corresponds to allocative efficiency—where MB equals MC.
5. Conclude that points inside the PPF represent inefficient use of resources, and points outside the PPF are unattainable with current resources, so neither illustrate proper allocation.