What is allocative efficiency and how does it relate to the production possibilities frontier?
What will be an ideal response?
Production efficiency occurs when production takes place at a point on the PPF. This indicates that all available resources are being used for production and society cannot produce additional units of one good or service without reducing the output of another good or service. Allocative efficiency, however, requires that the goods and services produced are those that provide the greatest possible benefit. This definition means that the allocative efficient level of output is the point on the PPF (and hence is a production efficient point) for which the marginal benefit equals the marginal cost.
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John believes that when the price of a good increases people will purchase more of the good. This statement is
A) consistent with the law of demand. B) inconsistent with the law of demand. C) referring to money prices. D) consistent with the law of supply.
(Consider This) Susie purchased a nonrefundable ticket to a soccer match for $20. It will cost her $10 worth of gas and wear and tear to drive to the match and $5 to park her car. On the day of the match, Susie's boss offers her $100 to come to work
instead. In considering what to do, which of the above would be considered a sunk cost? A. The $20 ticket to the match. B. The $10 cost to drive to the match. C. The $5 cost to park at the stadium. D. The $100 offered by Susie's boss.