In the absence of trade,a nation is in equilibrium where a community indifference curve:
A) Lies above its production possibilities curve
B) Is tangent to its production possibilities curve
C) Intersects its production possibilities curve
D) Lies below its production possibilities curve

Question

Quizplus · Accepted Answer

In the absence of trade, a nation is in equilibrium where a community indifference curve is tangent to its production possibilities curve. This is because the point of tangency represents the optimal allocation of resources between the production of two goods. At this point, the rate at which society is willing to substitute one good for another (the slope of the indifference curve) is equal to the rate at which the economy can technically substitute one good for another (the slope of the production possibilities curve). Any point below the production possibilities curve would be inefficient, while any point above would be unattainable without trade.

In the Absence of Trade,a Nation Is in Equilibrium Where