An economy produces only agricultural products (x) and manufactured goods (y). A

Question

An economy produces only agricultural products (x) and manufactured goods (y). A quarter of the land in the country is arid and not suitable for agricultural products. Therefore, if half of the arid land is not used at all:

(a) The economy could be productively efficient when the opportunity cost of x (agricultural products) is infinite;

(b) The economy could be productively efficient when the opportunity cost of y (manufactured goods) is zero;

(c) The economy could be productively inefficient with infinite opportunity cost for the production of x (agricultural products);

(d) The economy could be productively inefficient with infinite opportunity cost for the production of y (manufactured goods).

Explanation / Answer

An economy is said to be productively efficient when the amount of output it gets from its resources are maximum. In the given scenario when half of the arid land is not used at all, then it will result in a condition where,

(c) The economy could be productively inefficient with infinite opportunity cost for the production of x (agricultural products)

The above answer is correct since efficient productivity occurs when the output from its resources are maximum, but when there is infinite opporutnity cost for production of agriculural products, the economy will definitely be productively inefficient since half of the arid land is not used at all.

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