Which of the following is NOT true regarding the production possibilities frontier (PPF)?
A) The PPF shows the combination of goods that a country can produce given its current productivity and supply of resources.
B) The PPF illustrates the trade-offs that exist in the production of goods.
C) The PPF shows that gains from trade are maximized when countries produce those goods for which they have the absolute advantage in production.
D) The PPF illustrates the fundamental ideas of scarcity and opportunity cost.

Question

Quizplus · Accepted Answer

The statement that "the PPF shows that gains from trade are maximized when countries produce those goods for which they have the absolute advantage in production" is incorrect. The PPF illustrates the concept of comparative advantage, not absolute advantage, which suggests that countries should produce the goods for which they have a lower opportunity cost of production and trade with other countries to attain other goods they desire.

Which of the Following Is NOT True Regarding the Production