With trade,a country will maximize its satisfaction when it:
A) Moves to the highest possible indifference curve
B) Forces the marginal rate of substitution to its lowest possible value
C) Consumes more of both goods than it does in autarky
D) Finds its marginal rate of substitution exceeding its marginal rate of transformation

Question

Quizplus · Accepted Answer

Moving to the highest possible indifference curve denotes a situation where a country is consuming the maximum amount of goods that it desires, given its budget constraint. This implies that the country is maximizing its satisfaction or utility from the consumption of goods. Therefore, A is the correct answer.

B is not correct because forcing the marginal rate of substitution to its lowest possible value does not necessarily lead to satisfaction maximization.

C is not correct because consuming more of both goods than in autarky is not a sufficient condition for satisfaction maximization.

D is not correct because finding the marginal rate of substitution exceeding the marginal rate of transformation is a necessary condition for trade to be beneficial, but it does not mean that satisfaction is maximized.

With Trade,a Country Will Maximize Its Satisfaction When It