Question

Which of the following statements is TRUE?

A. If additional units of a good are produced at an increasing opportunity cost, the production possibilities frontier would be upward sloping. B. If a tax is imposed in a market, it will always lead to an inefficient level of output. C. If the demand for a product decreases and the supply of the same product decreases, the equilibrium price will decrease. D. Consider a country that produces only two goods: parrots and iguanas. Suppose it is impossible for this country to increase its production of parrots without producing fewer iguanas. In this case, its current output combination is efficient.

Answer 1

D. Consider a country that produces only two goods: parrots and iguanas. Suppose it is impossible for this country to increase its production of parrots without producing fewer iguanas. In this case, its current output combination is efficient.

This is talking about the production possibility frontier. Production Possibility Frontier refers to the curve that shows the combination of two goods that can be produced using same level of inputs and technology. With given inputs and technology, the firm can produce at any point on the curve and that will be efficient point.