**Question**

Suppose the fictional country of Yellowstone produces only two goods: rye and electric scooters. The following graph plots Yellowstone’s current production possibilities frontier, and includes six different output combinations given by black points (plus symbols) labeled A to F.

Complete the following table by indicating whether each point represents output combinations that are inefficient, efficient, or unattainable. Check all that apply.

## Solution

Point | Inefficient | Efficient | Unattainable |
---|---|---|---|

A | Correct | ||

B | Correct | ||

C | Correct | ||

D | Correct | ||

E | Correct | ||

F | Correct |

Every output combination on the production possibilities frontier shows an efficient output combination for Yellowstone. The points on the production possibilities frontier represent all combinations of output produced using all of the nation’s available resources and its current technology, such that the nation cannot produce more of one good without producing less of the other.

Points located **inside** the production possibilities frontier, such as A and B, represent **inefficient** output combinations. At these points, it is possible to increase the production of both goods because some resources are unemployed. For example, point A is inefficient because it is possible for Yellowstone to produce at point F instead, where the economy is producing both more rye and more electric scooters.

Points located **on** the production possibilities frontier, such as E and F, represent **efficient** output combinations. At these points, it is impossible to increase the production of one good without producing less of the other. For instance, if Yellowstone is currently producing at point F and decides that it wants to produce more rye, it must produce fewer electric scooters.

Points located **outside** the production possibilities frontier, such as C and D, represent output combinations that are **unattainable**, given current resources and technology. Recall that each point on the production possibilities frontier shows the maximum quantity of rye Yellowstone can produce if it also wants to produce the given quantity of electric scooters. For example, compare point F (36 million electric scooters and 46 million bushels of rye) with point D (36 million electric scooters and 95 million bushels of rye). Because point F is on Yellowstone’s production possibilities frontier, you can see that if Yellowstone is producing 36 million electric scooters, it can produce at most 46 million bushels of rye. Therefore, point D must be unattainable, given current resources and technology.

## Leave a comment