Question

Suppose an economy produces two goods, food and machines. This economy always operates on its production possibilities frontier. Last year, it produced 1000 units of food and 47 machines. This year it experienced a technological advance in its machine-making industry. As a result, this year the society wants to produce 1050 units of food and 47 machines. Which of the following statements is correct?
A. Because the technological advance occurred in the machine-making industry, it will not be possible to increase food production without reducing machine production below 47.
B. Because the technological advance occurred in the machine-making industry, increases in output can only occur in the machine industry.
C. In order to increase food production in these circumstances without reducing machine production, the economy must reduce inefficiencies.
D. The technological advance reduced the amount of resources needed to produce 47 machines, so these resources could be used to produce more food.

Answer 1

Answer:

The correct answer is option D.

Explanation:

The economy was earlier producing at the point on its production possibility frontier where it was producing 1000 units of food and 47 machines. After a technological advancement in the machine-making industry, society will want to produce 1050 units of food and 47 machines.  

Due to technological advances, society will require fewer resources to produce the same level of machines or it could produce more machines using the same level of resources.  

As society wants to produce the same level of machines, it will need fewer resources to do so. The remaining resources could be used to increase the production of food. So, society will be able to produce 1050 units of food and 47 machines.