Question

Suppose there are only two people in the world. Each person’s production possibilities frontier also represents his or her consumption possibilities when a. neither person faces trade-offs. b. the frontiers are straight lines. c. the frontiers are bowed out. d. they choose not to trade with one another.

Answer 1

Each person’s production possibilities frontier also represents his or her consumption possibilities when they choose not to trade with one another.

Option d

Explanation:

When one starts trading with one another there arises a sense of competition. Sometimes one might do better than the other. If there are trade connections between the two then the competition will turn into a bad practice as one might feel jealous of other's achievements. This leads to envy and may further lead to enmity.

In today's world if there are two persons and each person's production possibilities frontier will represent the consumption possibilities only when there is no trade between them. Self-dependency is the best choice here as there is no point in trade between two people. Instead, they can consume whatever they produce. There will not be any third party to decide too thus, it increases the complexity furthermore.