The graph above shows the PPC for a country that can produce oil or televisions. The straight line is the trade line and CPC if production is at Point A. Is this country producing the optimal mix of oil and televisions to maximize its income? Carefully explain how you know
What will be an ideal response?
No, the country is not producing the optimal production mix. Since the slope of the trade line is steeper than the slope of the PPC at point A, the country could increase its income by producing relatively more oil and relatively fewer televisions, until the trade line is tangent to the PPC.
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Which of the following statements about junk bonds is false?
A) Given the likelihood of default, it is never profitable to purchase junk bonds. B) They pay higher interest rates than investment grade bonds due to higher perceived risk. C) Prior to the 1970s, corporations were unable to issue junk bonds. D) A popular measure of junk bond yields reached a record low in 2012.
Relating to the Economics in Practice on page 357: Huntington's disease is an inheritable disorder which affects 1 in 10,000 individuals, and since 1993 there has been a test that perfectly predicts the disease. Presently, insurance companies are not legally allowed to inquire about the results of genetic tests. This has led to ________ favoring potential insurance buyers.
A. moral hazard B. market signaling C. asymmetric information D. adverse selection