🤑AP Microeconomics
1. Assume that the countries of Highland and Lowland produce only two goods: electric vehicles and tons of grain. Production in both countries is subject to constant opportunity costs. The table below shows the maximum annual production of each good for both countries if they use all their available resources.
Table 1: Maximum Annual Production
Country | Electric Vehicles | Grain (tons) |
|---|---|---|
Highland | 100 | 200 |
Lowland | 60 | 300 |
Draw a correctly labeled graph of the production possibilities curve for Highland and show each of the following.
The numerical intercepts for electric vehicles and grain
A point representing an inefficient use of resources, labeled I
A point representing an unattainable level of production, labeled U
A point representing full employment of resources, labeled F
Use the data in Table 1 to answer the following.
Calculate the opportunity cost of producing one electric vehicle in Highland. Show your work.
Which country has the comparative advantage in producing grain? Explain.
Highland and Lowland decide to specialize and trade based on comparative advantage.
Identify a specific number of tons of grain that could be traded for one electric vehicle that would be mutually beneficial for both countries.
If Highland specializes completely and trades with Lowland, will Highland's consumption possibilities lie inside, on, or outside its production possibilities curve? Explain.
Assume that Highland discovers a new fertilizer that doubles the productivity of grain but has no effect on the production of electric vehicles.
On your graph in part A, draw the new production possibilities curve for Highland.
What will happen to the opportunity cost of producing one electric vehicle in Highland? Explain.
Required Graph Drawing
