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.’”

Answer 1

An economy sacrifices 10,000 pizzas domestically for getting 1 additional robot. On the other hand, it can get 1 robot by sacrificing 9000 pizzas from another country. Here, another country specializes in the production of robots and hence produces them at a lower opporunity cost as compared to domestic country. Through trade, a nation can reduce the opportunity cost of obtaining goods and thereby can move outside it production possibilities curve by increasing its efficiency.