COMPARATIVE ADVANTAGE PRACTICE FRQ From the 2019 AP

COMPARATIVE ADVANTAGE PRACTICE FRQ

From the 2019 AP Exam Sweden and Norway use equal quantities of resources to produce food and capital goods. The table below shows the maximum possible production of food OR capital goods for each country. Food Country Capital Goods Sweden 50 100 Norway 30 120

Sweden and Norway use equal quantities of resources to produce food and capital goods. The table below shows the maximum possible production of food OR capital goods for each country. Food Country Capital Goods Sweden 50 100 Norway 30 120 (a) Draw a correctly labeled graph of the production possibilities curve for Sweden. Place food on the horizontal axis and capital goods on the vertical axis. Plot the relevant numerical values on the graph.

Sweden and Norway use equal quantities of resources to produce food and campital goods. The table below shows the maximum possible production of food OR capital goods for each country. Country Food Capital Goods Sweden 50 100 Norway 30 120 (a) Draw a correctly labeled graph of the production possibilities curve for Sweden. Place food on the horizontal axis and capital goods on the vertical axis. Plot the relevant numerical values on the graph. Capital goods 100 50 food

Country Food Capital Goods Sweden 50 100 Norway 30 120 (b) On your graph in part (a), indicate the following. (i) a point that represents an efficient level of production, labeled E (ii) a point that represents an inefficient level of production, labeled I (iii) a point that represents an unattainable level of production, labeled U Capital goods 100 50 food

Country Food Capital Goods Sweden 50 100 Norway 30 120 (b) On your graph in part (a), indicate the following. (i) a point that represents an efficient level of production, labeled E (ii) a point that represents an inefficient level of production, labeled I (iii) a point that represents an unattainable level of production, labeled U Capital goods 100 U E I 50 food

Country Food Capital Goods Sweden 50 100 Norway 30 120 (c) Assume Sweden moves from producing 20 units of food and 60 units of capital goods to producing 30 units of food and 40 units of capital goods. What will happen to economic growth in Sweden in the future? Capital goods 100 U E I 50 food

Country Food Capital Goods Sweden 50 100 Norway 30 120 (c) Assume Sweden moves from producing 20 units of food and 60 units of capital goods to producing 30 units of food and 40 units of capital goods. What will happen to economic growth in Sweden in the future? Sweden’s economic growth rate will slow or be reduced Capital goods 100 U NOTICE --- it doesn’t say explain so you don’ t have to --- BUT --- if it did: 50 Not producing capital goods makes it difficult to update or replace machinery used in manufactoring. This will reduce growth in the future as machinery wears out it will not be replaced and it will not be updated when new technology is available. E I food

Country (d) Food Capital Goods Sweden 50 100 Norway 30 120 Which country has the comparative advantage in the production of capital goods? Explain! HINT – remember you have to calculate opportunity cost first!

Country (d) Food Capital Goods Sweden 50 1 food = 100/50 = 2 capital goods 100 1 capital good = 50/100 = ½ food Norway 30 1 food = 120/30 = 4 capital goods 120 1 capital good = 30/120 = 1/4 food Which country has the comparative advantage in the production of capital goods? Explain! Norway has the comparative advantage in Capital Goods because it produces them at a lower opportunity cost than Sweden OR The opportunity cost of producing one unit of capital goods in Norway is ¼ a unit of food and in Sweden is ½ unit of food

Country Food Capital Goods Sweden 50 1 food = 100/50 = 2 capital goods 100 1 capital good = 50/100 = ½ food Norway 30 1 food = 120/30 = 4 capital goods 120 1 capital good = 30/120 = 1/4 food (e) Based on the table above, identify a specific number of units of capital goods that could be traded for 10 units of food and be mutually beneficial.

Country Food Capital Goods Sweden 50 1 food = 100/50 = 2 capital goods 100 1 capital good = 50/100 = ½ food Norway 30 1 food = 120/30 = 4 capital goods 120 1 capital good = 30/120 = 1/4 food (e) Based on the table above, identify a specific number of units of capital goods that could be traded for 10 units of food and be mutually beneficial.

Country Food Capital Goods Sweden 50 1 food = 100/50 = 2 capital goods 100 1 capital good = 50/100 = ½ food Norway 30 1 food = 120/30 = 4 capital goods 120 1 capital good = 30/120 = 1/4 food (e) Based on the table above, identify a specific number of units of capital goods that could be traded for 10 units of food and be mutually beneficial. Sweden will specialize in food because they have the lowest opportunity cost. For 1 unit of food they have to get at least 2 capital goods SO X 10 For 10 units of food they have to get at least 20 units of capital goods Look at Norway --- they are not willing to give more than 4 capital goods for 1 food SO X 10 They will not give more than 40 units of capital goods for 10 food Any number between 20 and 40 is right