Question

Suppose that Scoobania, which has full employment, can obtain 1 unit of capital goods by sacrificing 2 units of consumer goods domestically but can obtain 1 unit of capital goods from another country by trading 1 unit of consumer goods for it. This reality illustrates:________. a) a rightward (outward) shift of the production possibilities curve. b) increasing opportunity costs. c) achieving points beyond the production possibilities curve through international specialization and trade.d) productive efficiency.

Answer 1

Answer:

The correct answer is option c.

Explanation:

An economy named Scoobania is operating on full employment level. The production possibility curve of this economy is such that it can produce 1 unit of capital goods by sacrificing 2 units of consumer goods.

This means that the opportunity cost of one unit of capital goods is 2 units of consumer goods. However, through international trade this economy can obtain 1 unit of capital goods for 1 unit of consumer goods.  

This implies that the economy will be able to consume more of both capital goods as well as consumer goods. This indicates that Scoobania will be able to consume at a point beyond its production possibility curve.