Trade Expands Consumption Beyond Individual PPCs

Steps:

• Identify PPCs: Y1 for Northland, Y2 for Southland, showing maximum output combinations without trade.
• Apply comparative advantage: Each specializes in its lower opportunity cost good, producing at efficient points on its PPC.
• Determine trade effects: Exchange allows consumption along a line (Y1-X) reflecting terms of trade, beyond domestic PPC limits.
• Conclude attainability: Points on Y1-X are reachable post-trade, combining specialized production and imports/exports.

Why C is correct:

• Per comparative advantage theory, trade shifts consumption to the international exchange line (Y1-X), making all points there attainable as they lie within the combined economies' possibilities.

Why the others are wrong:

• A: Diagram may show linear PPCs for constant costs, not necessarily increasing for both.
• B: Point R likely indicates a pre-trade or production point, not the joint equilibrium consumption.
• D: Point R pertains to Northland (Y1), not specifically Y2's outcome.

Final answer: C