Question

Suppose that a country's post-trade consumption point lies outside of its production possibilities frontier. As a result, the country

a) is not affected by trade.
b) reaches the autarky point.
c) loses from trade.
d) gains from trade.

Answer 1

The correct answer is option d.

Step-by-step explanation:

The production possibility curve shows the different combinations of two goods that a country can produce using all the given resources and level of technology.

The points above the curve are unattainable because they need more resources. If post-trade a country can consume outside its production possibility frontier, it implies that the country is consuming more than what it could without trade. This shows that the country has gained from trade.

If countries trade in what they specialize in producing, they will be able to consume outside their production possibility frontier.