Suppose that two countries each have the exact convex-to-the-origin production-Possibilities frontier (PPF) as in Question #17 above (i.e., the countries have identical PPFs like the Question #17 PPF) and the two countries also have identical tastes. In this situation,

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Quizplus · Accepted Answer

If one country specializes in producing at one endpoint of the PPF and the other country specializes in producing at the other endpoint of the PPF, then they can gain from trade by trading with each other. For example, if one country specializes in producing only food and the other country specializes in producing only clothing, then they can trade with each other and both countries can end up with more food and more clothing than they would have had without trade. However, if both countries specialize in producing the same thing, then there would be no gains from trade. Therefore, option D is the best choice.

Suppose That Two Countries Each Have the Exact Convex-To-The-Origin Production-Possibilities