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A-Level Economics · Comparative advantage and the gains from trade diagram question

What does the fact that C lies BEYOND the frontier represent?

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The diagram

The answer

The gain from trade — specialisation plus exchange lets a country consume more than it can produce. Specialise where your opportunity cost is lowest, trade for the rest, and both countries consume beyond their PPFs. That is the whole case for trade in one point. The PPF limits what you can PRODUCE, not what you can CONSUME. Specialise in the good where your opportunity cost is lowest, trade at the world rate, and you end up outside your own frontier at C. Growth would be a different diagram altogether — the whole curve moving out.

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This is one of 6 questions on the comparative advantage and the gains from trade diagram — every corner lettered, every wrong answer diagnosed.

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