Figure 18-3

-In Figure 18-3, the solid lines represent the respective production possibilities curves for the United States and Mexico.Which graphs show the correct consumption possibilities curves (dashed lines) after an agreement is reached to trade 1 unit of wheat for 1 unit of petroleum?
A) (1) and (4)
B) (1) and (2)
C) (2) and (3)
D) (3) and (4)

Question

Figure 18-3
 
-In Figure 18-3, the solid lines represent the respective production possibilities curves for the United States and Mexico.Which graphs show the correct consumption possibilities curves (dashed lines) after an agreement is reached to trade 1 unit of wheat for 1 unit of petroleum?
A) (1) and (4) 
B) (1) and (2) 
C) (2) and (3) 
D) (3) and (4)

Quizplus · Accepted Answer

Graphs (1) and (2) show the correct consumption possibilities curves after the trade agreement. In graph (1), the United States specializes in producing wheat and Mexico specializes in producing petroleum, which allows for both countries to consume at a higher point on their respective consumption possibilities curves than before the trade. In graph (2), Mexico specializes in producing wheat and the United States specializes in producing petroleum, again allowing for both countries to consume at a higher point on their respective consumption possibilities curves than before the trade. The other two graphs show impossible consumption possibilities curves after the trade agreement due to the assumptions of the production possibilities curves (constant opportunity costs and fixed resources).

Figure 18-3 -In Figure 18-3, the Solid Lines Represent the Respective Production