Which of the following statements best describes the purpose of the production possibilities curve?

• A. It illustrates the maximum combinations of two goods that can be produced given available resources and technology.
• B. It shows the relationship between price and quantity demanded for a single good.
• C. It indicates the level of consumer satisfaction achieved from consuming different goods.
• D. It measures the total revenue generated by firms in a perfectly competitive market.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand what a Production Possibilities Curve (PPC) represents. It is a graphical representation that shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently utilized, given the current technology.
2. Step 2: Recognize that the PPC illustrates trade-offs and opportunity costs. Moving along the curve shows how producing more of one good requires producing less of another due to limited resources.
3. Step 3: Identify that the PPC does not show relationships related to price and quantity demanded, which are concepts from demand curves, nor does it measure consumer satisfaction or total revenue.
4. Step 4: Compare the given options to the definition and purpose of the PPC. The correct description should emphasize maximum production combinations given resources and technology.
5. Step 5: Conclude that the statement 'It illustrates the maximum combinations of two goods that can be produced given available resources and technology' best captures the purpose of the production possibilities curve.