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Is a combination of goods and services that is on a production possibilities frontier economically efficient?...

Is a combination of goods and services that is on a production possibilities frontier economically efficient?

A Yes, it is technically and allocatively efficient.

B Yes, it is technically efficient, at full employment, and allocatively efficient.

C No, it is not at full employment.

D No, it is not necessarily technically efficient.

E No, it is not necessarily allocatively efficient.

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Answer #1

Option E is correct

All those combination of goods and services that lie on the production possibilities frontier are considered to be productivity efficient because they are produced by using all the available resources and the updated technology which minimises the cost of production. however it is not always necessary that such a bundle is allocatively efficient. When a bundle is allocatively efficient the price is set equal to the marginal cost of production. This indicates that allocative efficiency represents the desires of the society and due to this reason it is not necessary that a particular bundle on the PPF is reflecting the desires of the society.

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