In the Accompanying Diagrams, Solid Lines Are Production Possibilities Curves

question 262

Multiple Choice

In the accompanying diagrams, solid lines are production possibilities curves, and the dashed lines are trading possibilities curves. The trading possibilities curves imply that

• A) both countries have a trade surplus that will result in economic growth.
• B) the domestic production possibilities curves entail unemployment and/or the domestic misallocation of resources.
• C) world resources will be allocated more efficiently if the two nations specialize and trade based on comparative advantage.
• D) both nations will be worse off as a result of international specialization and trade.