Production Possibilities Curve Is "A Essay

Examples like this occur throughout the EU, whereas at one point many nations within Europe had their own industries for most goods.

The standard of living in Europe has increased over the time that the EU has been around, but that can be said of most nations on Earth. The key to evaluating Europe's progress under the EU experiment is to consider if the standard of living in Europe is higher today than it would have been without the EU. This is actually debatable. Certainly, these nations have avoided war with each other, something that they could not manage to do prior to the EU. In addition, the nations within the EU have by far exceeded the success of the former Communist nations, or nearby nations like Turkey. Yet, one cannot really make the case that the EU nations are vastly ahead of non-EU nations like Switzerland or Norway. Those nations have seen their standards of living rise significantly without participation in the EU. While standards of living have certainly increased among the EU nations, this may be the result of adding new technologies and new factors of production, thereby pushing the production possibilities frontier outward.

5. From an economic perspective, free trade is the best way to optimize an economy. By engaging in free trade, nations can move closer to their production possibilities frontier, and they can extend their production possibilities frontier outward. Removing trade barriers may cause harm to some economic sectors, but will benefit others and the net effect will be positive for the economy, because efficiency will increase, meaning that output will also increase.

The main drawbacks to free trade are non-economic. If trade is so free that there is no role for government, this is probably going to have a negative impact on many within the population. A more realistic scenario holds that free trade would cause a nation to trade in things in which it has a comparative advantage, but those things might not be the most beneficial for the people within an economy.There are examples of this in the developing world where agriculture is repositioned away from food crops to cash crops, to the detriment of society which must then import the food. Comparative advantage does not guarantee that an economy will produce goods that are useful to it; only to the world at large. The EU case had the example of Spain producing low-end cars, but low-end products earn poor margins and for an economy this can mean lower average wages than found in Germany, which produces high-end cars.

In addition, issues of national security arise when free trade is implemented. A nation could not only trade its food and its energy because it is more efficient to do so, but it might also surrender key industrial sectors. Consider that in World War Two a lot of America's industrial capacity came from its automotive and aviation sectors. If the U.S. was to surrender those sectors to nations that have a comparative advantage in their production, the U.S. would be poorly equipped for future conflicts, especially if the conflict arose with the nations that were producing all of the weapons the U.S. wanted. So free trade is always tempered by government influence, as other types of policies are pursued at the expense of economic policy -- there is always an opportunity cost to trade based on comparative advantage and in some cases that cost is simply too risky.

Works Cited:

Investopedia. (2012). Production possibility frontier, growth, opportunity cost and trade. Investopedia. Retrieved May 14, 2012 from http://www.investopedia.com/university/economics/economics2.asp#axzz1ureHpKlk

Landsburg, L. (2007). Comparative advantage. Library of Economics and Liberty. Retrieved May 14, 2012 from http://www.econlib.org/library/Topics/Details/comparativeadvantage.html

Rittenberg, L. & Tregarthen, T. (2009). Principles of Microeconomics. FlatworldKnowledge.com.....