AP Macro
2010-2011
Name:___________________________
Free Response Question #1
1.
2.
3.
4.
What is the graph above illustrating?
Which country has the absolute advantage in the production of guns? butter?
Which country has the comparative advantage in the production of butter? guns?
Determine which country should specialize in the production of guns and which
country should specialize in the production of butter, and explain your answer.
5. Would the terms of trade 5 butter for 2 guns be an acceptable trade for both
countries? Explain
AP Macro
2010-2011
Name:___________________________
Free Response Question #2
Both Canada and the US produce lumber and music CDs with constant opportunity costs.
The US can produce either 10 tons of lumber and no CDs, or 1,000 CDs, and no lumber,
or any combination in between. Canada can produce either 8 tons of lumber and no CDs,
or 400 CDs and no lumber, or any combination in between.
1. Draw the US and Canadian production possibility frontiers in two separate
diagrams, with CDs on the horizontal axis, and lumber on the vertical axis.
2. In autarky, if the US wants to consume 500 CDs, how much lumber can it
consume at most? Label this point A in your diagram. Similarly, if Canada
wants to consume 1 ton of lumber, how many CDs can it consume in autarky?
3. Which country has the absolute advantage in lumber production?
4. Which country has the comparative advantage in lumber production?
Suppose each country specializes in the good in which it has the Comp. Advantage and
there is trade.
5. How many CDs does the US produce? How much lumber does Canada
produce?
6. Is it possible for the US to consume 500 CDs and 7 tons of lumber? Label
this point B in your diagram. Is it possible for Canada at the same time to
consume 500 CDs and 1 tons of lumber? Label this point D on your diagram.