Question

In autarky, when a country maximizes its utility, its consumption point is:

Answer 1

Answer:

b. On the production possibility frontier.

Explanation:

The production possibility frontier is a curve showing various combinations of the maximum production volumes of several goods (goods or services) that can be created under conditions of full employment using all resources available in the economy. Different release combinations reflect different uses of limited resources. For example, labor can be used in the production of various goods. The use of a unit of labor in the production of one good leads to the impossibility of its use in the production of any other good. Therefore, an increase in output in one sector of the economy leads to opportunity costs in the form of a decrease in output in another sector. In different sectors of the economy, resources can be used with different efficiency, therefore, the curve of production opportunities reflects a complex nonlinear relationship between different combinations of output. The intensity of resource use depends on the presence of other factors of production. For example, labor productivity depends on the availability of capital, as well as on the level of technology. The issue is also influenced by the law of diminishing marginal returns: with an increase in a resource and an unchanged number of other resources, the marginal return will decrease. The production capability curve is part of the optimal resource allocation task.

In autarky, when there happens the utility maximization the consumption point which is also equilibrium condition case, will be on the production possibility frontier. Because the consumption point will satisfy the problem and be the solution to make the equilibrium.