In the context of the Production Possibilities Frontier (PPF), the construction of canals most directly led to which of the following economic outcomes?

• A. A shift outward of the PPF due to improved transportation and trade
• B. An increase in the opportunity cost of trade between regions
• C. A reduction in the total output of goods and services
• D. A decrease in comparative advantage for regions connected by canals

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of the Production Possibilities Frontier (PPF). The PPF represents the maximum possible output combinations of two goods or services an economy can produce given its resources and technology.
2. Step 2: Recognize that improvements in transportation, such as the construction of canals, reduce costs and increase efficiency in moving goods between regions.
3. Step 3: Analyze how improved transportation affects the PPF. Since resources can be used more efficiently and trade becomes easier, the economy can produce and consume more than before, which is represented by an outward shift of the PPF.
4. Step 4: Consider the alternative options: an increase in opportunity cost would mean producing more of one good requires giving up increasingly more of another, which is not directly caused by canals; a reduction in total output contradicts the efficiency gains; and a decrease in comparative advantage is unlikely because better trade usually enhances specialization benefits.
5. Step 5: Conclude that the construction of canals most directly leads to an outward shift of the PPF due to improved transportation and trade, reflecting increased productive capacity and economic growth.