A Level Economics AQA Practice Exam

In the context of the PPF, what does it mean when an economy is operating on the frontier?

1. Resources are not fully utilized

2. Production is not efficient

3. All resources are allocated efficiently

4. Societal wants exceed production capabilities

The correct answer is: All resources are allocated efficiently

When an economy is operating on the production possibilities frontier (PPF), it indicates that all resources are allocated efficiently. This means that the economy is producing at its maximum potential output, utilizing all available resources—labor, capital, land, and technology—fully and effectively. Points on the frontier represent combinations of goods that can be produced when resources are employed to their fullest extent, leading to no waste of resources. In contrast, operating inside the frontier would imply that there are underutilized resources, which means not all resources are being put to use effectively. Additionally, producing outside the frontier is not feasible with current resources, while the concept that societal wants exceed production capabilities refers to the limitations represented by the PPF, but does not pertain to the efficiency of resource allocation on the frontier itself. Therefore, the scenario of operating on the frontier specifically signifies efficient production where resources are being utilized optimally, justifying the chosen correct answer.