Chapter 1R, Problem 23MCQ

To determine

The question requires us to determine the efficiency level of Isolandia on the production possibilities curve when country is producing only cereal.

Explanation of Solution

If an economy produces at the points on the production possibility curve, the economy represents product efficiency.

On the other hand, if the economy produces the mix of goods at the point along the production possibility curve that makes the consumers as better off as possible, the economy represents the allocation efficiency.

In the given case, the economy is producing at the point on the PPC at which only cereal is produced then the economy is achieving product efficiency but not the allocation efficiency.

Thus, option “a” is correct.

Economics Concept Introduction

The production possibility curve shows the trade-offs between the two products an economy is producing by using the given resources.