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.
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.
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter3: Interdependence And The Gains From Trade
Section: Chapter Questions
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