The claim that 'an economy inside the PPC is inefficient' is

• A. True
• B. False
• C. Not stated
• D. Not enough information

Answer: (A)

The main idea is about efficiency relative to the production possibilities frontier (PPF). The PPF shows the maximum combinations of two goods an economy can produce with given resources and technology. Points inside that frontier use resources less than fully, meaning some workers or capital are idle or misallocated. Because you could increase production of one or both goods without sacrificing anything by reallocating resources or improving efficiency, production inside the frontier is inefficient. Points on the frontier are productively efficient, and points outside aren’t attainable with current resources. So the statement is true.