A Level Economics AQA Practice Exam

When is an economy likely to become productively inefficient?

1. When all resources are utilized

2. When production exceeds consumer demand

3. When resources are misallocated or underutilized

4. When the economy is growing

The correct answer is: When resources are misallocated or underutilized

An economy becomes productively inefficient when resources are misallocated or underutilized. This occurs when not all available resources are being used in the most advantageous way possible. For instance, if some factories are operating below capacity or if certain goods are not being produced despite demand, the economy is not achieving the maximum potential output with its existing resources. Productive efficiency implies that goods and services are produced at the lowest possible cost, and all resources are utilized in their most effective capacities. When resources are misallocated, some sectors may experience excess production while others lack necessary inputs, leading to an overall loss in potential production. This contrasts with scenarios where all resources are utilized, production exceeds consumer demand, or the economy is experiencing growth. In those cases, inefficiency issues are generally not present, as optimal resource use or demand alignment is maintained.