The figure given below shows the post-trade production and consumption points in country Y. AB is the production-possibility curve of country Y. I₁ is the community indifference curve of country Y. Country Y imports: A)40 gallons of wine. B)60 pounds of cheese. C)50 gallons of wine. D)80 pounds of cheese.

Question

Quizplus · Accepted Answer

The country is currently at point U1, which is not on the production-possibility curve AB. This means that country Y cannot produce all the goods it needs on its own, and must import some goods to reach its desired level of consumption. The community indifference curve I₁ indicates that the country prefers to consume at point U1 rather than point B0. In order to reach point U1, the country needs to import 50 gallons of wine (from point B to point 1) and no cheese. Therefore, the best choice is C, which indicates that the country imports 50 gallons of wine.

The Figure Given Below Shows the Post-Trade Production and Consumption