Answer to Question #205925 in Economics of Enterprise for Lee

Question

Which of the following is an assumption under which the production possibilities frontier is drawn? (4 marks)

a) Total unemployment is zero.

b) The supply of resources is fixed.

c) The price level is changing.

d) Technology is changing

Answer 1

Solution:

The correct answer is b.). The supply of resources is fixed.

 

The production possibilities frontier is a curve that shows the different combinations of the output of two products that can be produced using available resources and technology.

Therefore, the assumptions made when drawing the production possibilities frontier are:

1.). Only two goods can be produced given the available resources.

2.). The supply of resources is fixed.

3.). Technology is fixed.

4.). The economy’s resources are fully employed and technically efficient.