Chapter 3, Problem 2MCQ

To determine

The question requires us to determine the movement of bundles when the quantity of capital goods rises without a corresponding fall in consumer goods production.

Explanation of Solution

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

If an economy is producing two goods then an increase in the production of one good is possible without a corresponding decrease in the production of another good in two situations:

• When resources increase,
• When there is an improvement in technology

In both situations, the production possibilities curve shifts outward and causes the production to increase.

Therefore, option “e” is correct.