In the absence of trade, a nation is in equilibrium where an 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

Without trade, a nation can only consume what it produces, meaning its consumption and production possibilities are the same. Therefore, the equilibrium point would be where its indifference curve (representing its desired consumption) is tangent to its production possibilities frontier (representing its maximum production).

In the Absence of Trade, a Nation Is in Equilibrium