Question

#12. Suppose that, on the basis of a nations 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 9000 pizzas. Relate this information to the following statement; Through international specialization and trade, a nation can reduce its opportunity cost of obtaining good and thus 'move outside its production possibility curve."

Answer 1

Solution: Without international trade,

Opportunity cost of 1 robot = 10000 pizzas

With international trade,

Opportunity cost of 1 robot = 9000 pizzas

Here, the opportunity cost of 1 robot is less in comparison to the opportunity cost in the absence of international trade.

If international trade takes place,

Then 10000 pizzas can yield number of robots = 10000/9000 =1.11 robots

So,

With international trade,

Resources are used to produce 10000 pizzas or 1.11 robots or their multiples. Here, PPC expands due to international trade because it was only 10000 pizzas and 1 robots or their multiples without international trade.