Question

When an economy is operating on the PPC, it indicates _________.

• A. potential output $>$ actual output
• B. potential output $=$ actual output
• C. potential output $<$ actual output
• D. none of the above

Answer 1

Answer: (B)

potential output $=$ actual output

Production possibility curve shows all different attainable combinations of the production of two commodities that can be produced in an economy with given the resources and technology which are to be fully utilized. Therefore, every point on PPC indicates that resources are efficiently and fully utilised for the production of goods and services in the economy.Therefore, when a country operates on the PPC, the potential output is achieved, in terms of actual output.