In the absence of trade, a nation is in equilibrium where a community indifference curve
A) lies above its production possibilities frontier.
B) is tangent to its production possibilities frontier.
C) intersects its production possibilities frontier.
D) lies below its production possibilities frontier.

Question

Quizplus · Accepted Answer

In the absence of trade, a nation is producing at its maximum potential, which is represented by its production possibilities frontier. The point where the community indifference curve is tangent to the production possibilities frontier represents the most efficient allocation of resources, and therefore, the point of equilibrium. Thus, the correct answer is B - the community indifference curve is tangent to the production possibilities frontier.

In the Absence of Trade, a Nation Is in Equilibrium