AP Economics:
Comparative Advantage Review FRQs
April 22, 2015
Comparative Advantage FRQs
OUTPUT PER WORKER PER DAY
Units of
Units of
Country
Cloth
Food
Newland
10
2
Beeland
10
1
1) The table above gives the production alternatives of two nations that are producing
cloth and food, using equal amounts of resources.
a) i) Calculate the opportunity cost of producing a unit of cloth in Newland
1/5 unit of food
ii) Calculate the opportunity cost of producing a unit of food in Beeland.
10 units of cloth
b) i) Which nation has the comparative advantage in cloth production?
Beeland
ii) Which nation has the comparative advantage in food production?
Newland
c) Now assume that the productivity of Beeland’s workers triples for each
good.
i) Which country has the comparative advantage in food production?
Newland
ii) Explain how you determined your answer.
Opportunity cost of producing food has not changed in Beeland…
or… Newland’s opportunity cost of producing food is 5 units of cloth
and Beeland’s in 10 units of cloth. Newland has a lower opportunity
cost of producing food and thus a comparative advantage in food
production.
2)
Using equal amounts of resources, the countries of Ashna and Luna can each produce
any combination of food and machines described by their production possibilities
curves above.
a) Which country has an absolute advantage in the production of machines?
Explain.
Luna. They produce more machines with same amount of resources (40
vs. 10).
b) Which country has an absolute advantage in the production of food?
Explain.
Luna. They produce more food with same amount of resources (40 vs.
30)
c) Which country has a comparative advantage in the production of
machines? Explain.
Luna. They have lower opportunity cost of producing machines (1 unit
of food vs 3 units of food).
d) With trade between these two countries, which country will import food?
Explain.
Luna. Ashna has the lower opportunity cost in producing food (1
machine vs 1/3 machine) and thus the comparative advantage in
producing food, so they should specialize in producing food and Luna
should produce machines and import food.
e) Give an example of terms of trade acceptable to both countries.
Luna would pay between 1/3 and 1 machine per food and Ashna would
pay between 1 and 3 units of food per machine.
(Any figure between pre-trade opportunity costs is acceptable)
3)
Assume that two countries, Atlantis and Xanadu, have equal amounts of resources.
Atlantis can produce 30 cars or 10 tractors or any combination, as shown by the line
MN in the figure above. Xanadu can produce 20 cars or 40 tractors or any
combination, as shown by the line PQ in the figure above.
a) Which country has an absolute advantage in the production of tractors?
Explain how you determined your answer.
Xanadu. They can produce more tractors with the same resources (40
vs. 10)
b) Which country has a comparative advantage in the production of cars?
Using the concept of opportunity cost, explain how you determined your
answer.
Atlantis. Their opportunity cost of producing a car is 1/3 tractor,
Xanadu’s is 2 tractors.
c) If the two countries specialize and trade with each other, which country
will import cars? Explain why?
Xanadu. They have higher opportunity cost of producing carsso should
specialize in producing tractors… or …Atlantis has lower opportunity
cost of producing cars and should specialize in producing cars… or … it
is cheaper for Xanadu to produce tractors and trade for cars than to
produce cars.
d) If the terms of trade are such that one car can be exchanged for one
tractor, explain how Atlantis will benefit from such trade.
Atlantis can produce 1 car and trade for 1 tractor. Without trade they
would give up production of 3 cars to produce 1 tractor. Trade allows
Atlantis to consume beyond their PPC.