Yesterday we reached the conclusion that comparative advantage led to gains from specialisation, provided that trade is allowed. Now let’s go a bit deeper. We will start by looking at yesterday’s question of the day.
You have been shortchanged so far. Tremendously so.
We asked — How to produce; we answered — produce on the PPC!
We asked — What and how much to produce; we answered — produce on the right point on the PPC!
The sky is blue. — (1)
I like anything that is blue — (2)
The economy can only produce goods and services within or on the PPC, as shown on the diagram below. All points shown are some examples of possible points of production for the economy. The economy is, at least theoretically, able shift its production from one point to another.