With trade, a country will maximize its economic well-being when it:
A) moves to the highest possible indifference curve.
B) forces the marginal rate of substitution to its lowest possible value.
C) consumes more of both goods than it does in autarky.
D) finds its marginal rate of substitution exceeding its marginal rate of transformation.

Question

Quizplus · Accepted Answer

A country will maximize its economic well-being when it moves to the highest possible indifference curve, as this indicates that the country is able to consume a combination of goods that provides the highest level of satisfaction or utility. This occurs when the country trades to obtain goods that it cannot produce as efficiently, allowing it to consume more of both goods than it would be able to in autarky. However, the other choices do not necessarily lead to maximizing economic well-being. Forcing the marginal rate of substitution to its lowest possible value (B) would likely lead to reduced consumption of one or both goods, while finding the marginal rate of substitution exceeding the marginal rate of transformation (D) would imply inefficient resource allocation.

With Trade, a Country Will Maximize Its Economic Well-Being When