Answer to Question #282581 in Economics for Hafsa

Question

Why is a nation's production possibility frontier the same as its consumption frontier in the absence of trade? How does the nation decide how much of each commodity to consume in the absence of trade?

Answer 1

In the absence of trade a country must consume the goods and services it produces. The production possibilities frontier shows combinations of goods a country can produce. Without trade countries must consume at a point on their PPF's.

In the absence of trade the nation decide how much of each commodity to produce and consume using the opportunity cost of their production.