An Economy Producing Ice Cream and Cookies

How can an economy producing ice cream and cookies increase cookie production?

options:

A. it increases the price of ice cream.

B. it increases the price of cookies.

C. more of the economy's resources become idle.

D. it produces less ice cream.

Answer:

The correct answer is option D: it produces less ice cream.

In an economy operating efficiently and producing two goods, ice cream and cookies, more cookie production can be achieved by reducing ice cream production. This concept is based on the economic theory of the production possibility frontier (PPF), which states that when resources are fully utilized, increasing the production of one good requires decreasing the production of another.

Therefore, if the economy wants to increase cookie production, it must allocate resources away from ice cream production towards cookies. By doing so, the economy can produce more cookies while sacrificing some ice cream production.

Understanding the trade-off between producing different goods is essential in maximizing efficiency and output in an economy. By optimizing resource allocation based on consumer demand and market conditions, an economy can adapt to changing preferences and achieve economic growth.