Question

Suppose that, on the basis of a nation’s production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the 1 additional industrial robot it desires but that it can get the robot from another country in exchange for 9,000 pizzas. Relate this information to the following statement:

“Through international specialization and trade, a nation can reduce its opportunity cost of obtaining goods and thus ‘move outside its production possibilities curve.’”

Not sure how to answer

Answer 1

With specialization,the nations produce only those goods in which they have a comparative advantage and a lower opportunity cost and trade these goods in exchange for those goods in which they do not have a comparative advantage in and so in this manner both nation can trade goods in which they do not enjoy favorable production possibility and gain from international trade.

In this question,instead of giving up 10000 units,the country has to only give up 9000 units and can consume the rest domestically thus increasing its production possibility with the help of specialization and international trade.