why with international trade, the domestic economy's consumption possibilities curve can be greater than the domestic economy's production pssibilities curve.
With international trade, the domestic economy's consumption possibilities curve can be greater than the domestic economy's production possibilities curve because trade allows countries to specialize in producing goods and services that they have a comparative advantage in, and import goods and services that are produced more efficiently by other countries. This specialization and trade can enhance the overall economic efficiency and increase the total output of goods and services available for consumption.
To understand why the consumption possibilities curve can be greater than the production possibilities curve, it is important to understand the concept of comparative advantage. Comparative advantage refers to a situation where a country can produce a particular good or service at a lower opportunity cost compared to other countries. Opportunity cost refers to the value of the next best alternative forgone when making a choice.
When countries specialize in the production of goods and services in which they have a comparative advantage, they can achieve a more efficient allocation of resources. This means that they are able to achieve higher levels of production or output for a given set of resources.
For example, let's consider a hypothetical scenario where Country A can produce both cars and televisions. The country's production possibilities curve shows all the different combinations of cars and televisions that it can produce given its available resources and technology. However, if Country A discovers that it has a comparative advantage in producing cars and Country B has a comparative advantage in producing televisions, they can benefit from trade.
By specializing in car production and exporting them to Country B, while importing televisions from Country B, both countries can increase their consumption possibilities. Country A, with its comparative advantage in car production, can produce more cars than it could if it had to allocate resources to produce televisions as well. At the same time, Country B, with its comparative advantage in television production, can produce more televisions than it could if it had to produce cars as well. Through trade, both countries can consume more cars and televisions than they would be able to produce on their own.
In summary, international trade allows countries to specialize in the production of goods and services in which they have a comparative advantage. This specialization and trade can lead to higher levels of production, which in turn increases the total amount of goods and services available for consumption. As a result, the consumption possibilities curve can be greater than the production possibilities curve.