Unit 1, Chapter 38
Mr. Maurer
AP Economics
Name: _______________________________
Date: _____________________
Chapter 38, Problem Set #6 – More Practice with Comparative Advantage and Trade
SOLUTIONS
1. Refer to the table below to answer the following countries. These two countries are producing
textiles and wheat using equal amounts of resources.
Bushels of Wheat
Units of Textiles
Weekly Output per Worker
Country A
Country B
30
10
40
60
a. Is this an input problem or an output problem? Output
b. What is the opportunity cost of producing a bushel of wheat for each country?
Country A: 30 bushels wheat = 40 units textiles; 1 bushel wheat = 4/3 units textiles.
Country B 10 bushels wheat = 60 units textiles; 1 bushel wheat = 6 units textiles.
c. Which country has the absolute advantage in wheat production? Explain.
Country A. Given the same number of workers, Country A can produce more wheat.
d. Which country has the comparative advantage in textile production? Explain.
Country B.
Country A’s opportunity cost for textiles is ¾ bushels of wheat. Country B’s opportunity cost for
textiles is only 1/6 bushels of wheat.
e. Determine the terms of trade that would be beneficial to both countries. Include which country
will be exporting which good and which will be importing which good.
Country A will produce wheat. It must get between 4/3 units of textiles and 6 units of textiles
for each bushel of wheat. (4/3 t < 1 w < 6 t)
OR
Country B will produce textiles. It must get between 1/6 bushels wheat and ¾ bushels
wheat for each unit of textiles (1/6 w < 1 t < ¾ w)
Unit 1, Chapter 38
2. Use the graph for the following questions.
a. Is this an input problem or an output problem? Output
a. Which country has an absolute advantage in the production of each good? Explain.
Country A has absolute advantage in corn because, given the same resources, it can produce
more corn. Country B has absolute advantage in computers because, given the same resources,
it can produce more computers.
b. For Country A, what is the opportunity cost of a bushel of corn? For Country B?
Country A: 700 corn = 300 computers, so 1 corn = 3/7 computers. Country A’s opportunity cost
for one bushel of corn is 3/7 computers.
Country B: 300 corn = 600 computers, so 1 corn = 2 computers. Country B’s op. cost for one
bushel of corn is 2 computers.
c. Which country has a comparative advantage in producing each good?
Country A has comparative advantage in corn.
Country B has comparative advantage in computers.
d. If the countries specialize and trade, which country will import computers?
Country A will import computers.
e. What is the highest price that country will be willing to pay for a computer? Explain
Country A will not pay more than 7/3 bushel of corn for each computer because that is it’s
opportunity cost for computers.
Unit 1, Chapter 38
3. In France, a pump can be produced by 3 workers in one day and a magazine by 2 workers in one
day. In the United States, a pump can be produced by 4 workers in one day, and a magazine by 3
workers in one day.
a. Is this an input problem or an output problem? Input (they give you workers required, not
quantity of magazines and pumps).
b. Which country has an absolute advantage in the production of pumps? In magazines?
France has absolute advantage in pumps (given the same number of workers, they could
produce more pumps).
France has also has absolute advantage in magazines (given the same number of workers,
they could produce more magazines).
c. Calculate the opportunity cost of pumps for France.
Given 3 workers, France could produce 1 pump. Those same 3 workers could produce 3/2
magazines. Their op. cost for pumps is 3/2 magazines.
d. Calculate the opportunity cost of pumps for the United States.
Given 4 workers, the U.S. could produce 1 pump. Those same 4 workers could produce 4/3
magazines. Their op. cost for pumps is 4/3 magazines.
e. Which country has comparative advantage in the production of pumps? Explain.
The U.S. has comparative advantage in pumps. Their opportunity cost for pumps is lower than
France’s (4/3 < 3/2)
c. Which country should specialize in the production pumps? Of magazines?
Pumps: the United States
Magazines: France
d. Define the terms of trade that would be beneficial to both countries.
The U.S. should produce and export pumps. They must get at least 1 1/3 magazines for each
pump. France must give up less than 1 ½ magazines for each pump (4/3 m < 1 p < 3/2 m)
OR
France should produce and export magazines. The must get at least 2/3 pump for each
magazine. The U.S. must give up less than ¾ pump for each magazine (2/3 p < 1 m < ¾ p).
Unit 1, Chapter 38
4. Use the graph at left to answer the
following:
a. Is this an input problem or an output
problem? Input Before you get confused,
read the title of the graph carefully. The
graph is not showing you cars and trucks
produced. It’s showing you tons of steel
required to produce 1000 cars or 1000
trucks, so it’s an input problem.
b. Which country has an absolute advantage
in each product?
Cars:
Russia
Trucks: Russia
c. What is the opportunity cost of a car in each country?
China: Opportunity cost for 1 car is ½ truck. (opposite goes under OR with 500 tons of steel
they could produce 1 car or ½ truck)
Russia: Opportunity cost for 1 car is 1/3 truck (opposite goes under OR with 300 tons of steel
they could produce 1 car or 1/3 truck).
d. Which country has a comparative advantage in the production of cars? Explain.
Russia has the comparative advantage in producing cars because their opportunity cost is
lower than China’s.
e. If these countries specialize and trade, what good will China import. Explain.
China will import cars. Since Russia’s opportunity cost for cars is lower, Russia will produce
cars. Therefore, China’s opportunity cost for trucks is lower and they will produce trucks and
not cars.
f. Define the terms of trade that will be beneficial to both countries.
Russia will produce and export cars. They must get at least 1/3 truck for each car. China must
give up less than ½ truck per car. (1/3 t < 1 c < ½ t)
OR
China will produce and export trucks. They must get at least 2cars for each truck. Russia must
give up less than 3 cars per truck. (2c < 1t < 3c) (to do it this way, just calculate the opportunity
cost for each country for trucks)