3. What is meant by the “consumption possibilities” of a country? How are consumption possibilities related to production possibilities in a closed economy? In an open economy? (LO2) countries—consumption possibilities are typically greater than, and never less than, the economy’s production possibilities. Graphically, an open economy’s consumption possibilities are described by a downward-sloping line that just touches the PPC, whose slope equals the amount of the good on the vertical axis that must be traded to obtain one unit of the good on the horizontal axis. A country achieves its highest consumption possibilities by producing at the point where the consumption possibilities line just touches the PPC and then trading to obtain the most preferred point on the consumption possibilities line. (LO2) • In a closed economy, the relative price of a good or service is determined at the intersection of the supply curve of domestic producers and the demand curve of domestic consumers. In an open economy, the relative price of a good or service equals the world price—the price determined by supply and demand in the world economy. If the price of a good or service in a closed economy is greater than the world price and the country opens its market to trade, it will become a net importer of that good or service. But if the closed-economy price is below the world price and the country opens itself to