MC Qu. 25 Use the following diagram to answer...

Use the following diagram to answer the next question.

The horizontal axis is labeled consumer goods and lists markings from left to right as F, B, and D. The vertical axis is labeled capital goods and lists markings from bottom to top as E, A, and C. Three concentric curves are drawn from the vertical axis to the horizontal axis and the curves' overall shape is a quarter circle, approximately. First curve initiates from E and ends at F, second curve initiates from A and ends at B, and the third curve initiates from C and ends at D at the horizontal axis. Second curve has three points labeled as 1, 2, and 3. A point labeled 4 is plotted to the left of point 2 (between first and second curve). A point labeled 5 is plotted to the right of point 2 (after the third curve).

The most likely cause for a shift in the production possibilities frontier from AB to CD is

Question

MC Qu. 25 Use the following diagram to answer...

Use the following diagram to answer the next question.

The horizontal axis is labeled consumer goods and lists markings from left to right as F, B, and D. The vertical axis is labeled capital goods and lists markings from bottom to top as E, A, and C. Three concentric curves are drawn from the vertical axis to the horizontal axis and the curves' overall shape is a quarter circle, approximately. First curve initiates from E and ends at F, second curve initiates from A and ends at B, and the third curve initiates from C and ends at D at the horizontal axis. Second curve has three points labeled as 1, 2, and 3. A point labeled 4 is plotted to the left of point 2 (between first and second curve). A point labeled 5 is plotted to the right of point 2 (after the third curve).

The most likely cause for a shift in the production possibilities frontier from AB to CD is

BlackTom AI · Accepted Answer

Question restatement: The diagram shows three curved PPF lines with points labeled along them, and the prompt asks for the most likely cause for a shift in the production possibilities frontier from AB to CD. Answer options:
1) an increase in the government purchase of the economy's output.
2) an increase in the spending of business and consumers.
3) the use of the economy's resources in a less efficient way.
4) an increase in the quantity and quality of labor resources.

Option 1: An increase in government purchases of output. This is typically an aggregate demand factor that can move the economy along the current PPF or shift AD, but it does not directly shift the production possibilities frontier itself. A shift of the PPF reflects a change in the economy’s capacity, not merely spending in a given period. Therefore this choice describes a demand-side effect rather than a long-run growth of capacity, making it incorrect as the cause of shifting AB to CD.

Option 2: An increase in the spending of business and consumers. Similar to option 1, higher spending is a demand-side phenomenon that moves the economy toward more consumption or investment within the existing capacity. It does not expand the frontier outward by increasing the economy’s ability to produce goods and services, so this is not the correct reason for a frontier shift.

Option 3: The use of the economy's resources in a less efficient way. A less efficient use of resources would reduce output or depress the economy, potentially shifting the frontier inward or flattening it, not outward to CD. This option describes a misallocation problem, not growth, so it’s incorrect for explaining an outward shift.

Option 4: An increase in the quantity and quality of labor resources. This directly expands the economy’s productive capacity: more workers (quantity) or more skilled workers (quality) enable more or better production of both capital and consumer goods. Such growth in resources shifts the PPF outward, changing the frontier from AB toward CD. This aligns with the idea of economic growth improving potential output.

Why the others are incorrect in short: options 1 and 2 involve changes in demand or spending, not the capacity to produce; option 3 implies inefficiency and a possible inward shift rather than outward growth.

In summary, the outward shift from AB to CD is best explained by an increase in the quantity and quality of labor resources (option 4).

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