An economy operating inside the PPC curve is operating:

• A. Inefficiently
• B. Efficiently
• C. At maximum output
• D. On the frontier

Answer: (A)

The Production Possibilities Curve shows how resources and technology limit what an economy can produce. Points on the curve reflect efficient use of resources, where you cannot increase production of one good without giving up some of the other. When production occurs inside the curve, some resources are idle or underused, so the economy could increase output of at least one good without sacrificing the other. That’s why operating inside the curve is described as inefficient. It isn’t at maximum output, and it isn’t on the frontier where resources are fully utilized.