Question

Suppose that, on the basis of a nation’s production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the 1 additional industrial robot it desires but that it can get the robot from another country in exchange for 9,000 pizzas. Now consider 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." Which of the following explains the relationship between the situation described and the statement?
A. Specialization and trade have the same effect as having more and better resources or discovering improved production techniques.
B. The input gains from greater international specialization and trade are the equivalent of economic growth.
C. Specialization and trade have the same effect as having more and better products or discovering improved production techniques.
D. International specialization means directing domestic products to the output that a nation is highly efficient at purchasing.

Answer 1

Answer:

B. The input gains from greater international specialization and trade are the equivalent of economic growth.

Explanation:

If a country moves outside its production possibilities curve, the country has experienced economic growth, precisely because it has increased the amount of goods it can produce according to the production possibilities curve.

International trade thus facilitates economic growth because it makes each country focus on the production of the goods that have the lower opportunity cost, and therefore, use the country's resources more efficiently. This, added to technological improvements, can help a country's economy become larger in both the short and long-term.