For a particular economy, the production possibilities curve shows the
Multiple Choice
change in the price level.
maximum level of pollution.
maximum potential output.
level of market power.
maximum potential output.
The correct answer is: maximum potential output.
The correct answer is: "maximum potential output."
To understand why, let's first explain what a production possibilities curve (PPC) represents. A PPC is a graphical representation that shows the different combinations of two goods or services that an economy can produce given its limited resources and technology. It illustrates the maximum potential output that can be achieved by efficiently utilizing these resources.
The PPC is concave, meaning it curves outward, because of the concept of opportunity cost. As an economy produces more of one good, it must sacrifice the production of another good. This trade-off is reflected in the shape of the PPC.
Therefore, the PPC represents the different combinations of goods an economy can produce efficiently, indicating the maximum potential output. It does not show the change in the price level, the level of pollution, or the level of market power as suggested in the multiple-choice options.