If an economy is producing a combination of goods that lies below PPC, it shows ____________.

efficiency of allocation of resources

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inefficiency of allocation of resources

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full utilization of resources

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both (a) & (c)

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Solution

The correct option is A inefficiency of allocation of resources
If an economy is producing a combination of goods that lies below PPC, it shows the inefficiency of allocation of resources because the reources are not being used to their full capacity. The PPC shifts towards the left, when there is a technological degradation and/or decrease in resources with respect to both the goods. For example, destruction of resources in an earthquake will reduce the productive capacity and as a result, PPF shifts towards the left.

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