Q10 Suppose that based on a nation's... [FREE SOLUTION]

Chapter 1: Q10 (page 17)

Suppose that based on a nation's production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the one additional industrial robot it desires, but 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."

Short Answer

Expert verified

The nation has to sacrifice 9,000 pizzas instead of 10,000 to obtain one additional industrial robot after engaging in specialization and trade. It reduces the opportunity cost of the robot by 1,000 pizzas. The economy will move outside its production possibility curve.

Step by step solution

Effect of international trade and specialization on the opportunity cost

The nation has to sacrifice 10,000 units of pizzas to obtain an additional industrial robot unit in the absence of specialization and trade. On the other hand, international trade allows the nation to receive the same unit of the robot only by paying 9,000 units of pizzas.

It shows that the opportunity cost of obtaining an industrial robot has decreased by 1,000 units if the nation engages in international trade.

Relating the information to the statement

The nation has saved 1,000 pizzas per robot by engaging in international specialization instead of producing it domestically. The gain of pizzas will increase the overall output of the nation. An increase in output will move the economy outside its production possibility curve.

The example shows that the nation has moved outside its production possibility curve after engaging in international specialization and trade.