Answered: When two countries decide to specialize…

Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781305971509

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter3: Interdependence And The Gains Rrom Trade

Section: Chapter Questions

Problem 3CQQ

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Question

When two countries decide to specialize and exchange, both countries will be able to consume

a. at a point on the production possibilities frontier

b. at a point outside the production possibilities frontier

c. at anypoint point inside the production possibilities frontier

Expert Solution

Step 1

The decision to specialization and engages in trade by two countries would better off both of them via raising their consumption to a higher level of indifference curve, i.e. both the nation would gain from trade by raising their consumption level.

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