1. Two nations, Omoland and Agbaland, can produce either clothing or food using all their available resources at constant opportunity cost. Shown below is the daily production of clothing or food in Omoland and Agbaland. (5 points) Clothing Food Omoland 120 20 Agbaland 80 20 (a) Which nation has the absolute advantage in producing food? Explain. (b) Which nation has the comparative advantage in producing food? Explain using numbers. (c) Assume the two nations specialize based on their comparative advantage. If the two nations engage in trade and one unit of food is exchanged for 5 units of clothing, will these terms of trade be mutually beneficial? Explain. (d) Assume Agbaland invented new equipment to only increase the production of clothing. (i) Draw a correctly labeled graph of Agbaland's initial production possibilities curve, with clothing on the horizontal axis and food on the vertical axis. Plot the numerical values above on the graph. AP Microeconomics Module 1 Assessment – Fundamental Economic Concepts (ii) Show the effect of the new equipment on Agbaland's production possibilities curve.

Is it possible to have a comparative advantage in the production of a good but not to have an absolute advantage? Explain.

In Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worker can make 10 tons of rubber or 40 radios. Who has the absolute advantage in the production of rubber or radios? How can you tell? Calculate the opportunity cost of producing 80 additional radios in Japan and in Malaysia. (Your calculation may involve fractions, which is fine,) Which country has a comparative advantage in the production of radios? Calculate the opportunity cost of producing 10 additional tons of rubber in Japan and in Malaysia. Which country has a comparative advantage in producing rubber? In this example, does each country have an absolute advantage and a comparative advantage in the same good? In what product should Japan specialize? In what product should Malaysia specialize?

Residents of the town of Smithfield like to consume hams, but each ham requires 10 people to produce it and takes a month. If the town has a total of 100 people, what is the maximum amount ham the residents can consume in a month?

How does comparative advantage lead to gains from trade?