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The production possibilities boundary shows possible combinations of guns and butter that can be produced by a country. The lower diagram shows demand and supply for butter.

Short description: Two graphs. The first graph plots butter against guns. The second graph plots quantity of butter against the price of butter. Long description: The first graph shows a concave down decreasing curve that begins at a point on the vertical axis near the top-left and ends at a point on the horizontal axis near the bottom-right. The horizontal axis representing butter ranges from Q subscript 0 to Q subscript 2. The vertical axis represents guns. Three vertical dashed lines are drawn from Q subscript 0, Q subscript 1, and Q subscript 2 to meet the curve at points, a, b, and c. The second graph shows two decreasing curves, D and D subscript 1 and an increasing curve, S. The horizontal axis representing the quantity of butter ranges from Q subscript 0 to Q subscript 2. The vertical axis represents the price of butter (relative to guns). Three vertical dashed lines are drawn from Q subscript 0, Q subscript 1, and Q subscript 2. The curve, S starts at a point near the bottom-left and ends at a point near the top-right. The curve, D starts at a point near the top-left and ends at a point near the bottom-right. The curves, D and S intersect on the line, Q subscript 1. The dashed curve, D subscript 1 is parallel to D which intersects the curve S at Q subscript 2.

FIGURE 12-2

Refer to Figure 12-2. Demand and supply for butter are shown by D and S. Suppose the economy is at point (a) on the production possibilities boundary. How can this economy move toward allocative efficiency?



▸ produce more butter, fewer guns

▸ increase the supply of guns

▸ increase the demand for butter

▸ produce less butter, more guns

▸ expand the production possibilities boundary outward
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Microeconomics

Microeconomics


Edition: 17th
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