Effect of International Trade and Specialization on PPC (summary)

28 Apr

Production possibilities analysis implies that a nation is limited to the combinations of output indicated by its production possibilities curve. But we must modify this principle when international specialization and trade exist.

An economy can avoid, through international specialization and trade, the output limits imposed by its domestic production pos­sibilities curve. International specialization means directing domestic resources to out­put that a nation is highly efficient at producing. International trade involves the exchange of these goods for goods produced abroad. Specialization and trade enable a nation to get more of a desired good at less sacrifice of some other good. Specialization and trade have the same effect as having more and better resources or discovering improved production techniques; both increase the quan­tities of capital and consumer goods available to society.


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