๐คAP Microeconomics
๐คAP Microeconomics
FRQ 1 โ Long
Unit 1: Basic Economic Concepts
Practice FRQ 1 of 191/19
1. Novania and Techland are two countries that produce two goods: grain and solar panels. Both countries have constant opportunity costs of production and trade with each other.
- If Novania uses all its resources, it can produce 100 units of grain or 50 units of solar panels.
- If Techland uses all its resources, it can produce 40 units of grain or 40 units of solar panels.
A. Draw a correctly labeled graph of the production possibilities curve for Novania, with grain on the vertical axis and solar panels on the horizontal axis (see Figure 1). Show each of the following.
i. The numerical values for the vertical and horizontal intercepts
ii. A point labeled I that represents an inefficient use of resources
iii. A point labeled E that represents an efficient use of resources
B. Calculate the opportunity cost of producing one unit of solar panels in Novania. Show your work.
C.
i. Which country has an absolute advantage in the production of grain? Explain.
ii. Which country has a comparative advantage in the production of solar panels? Explain.
D. Identify a specific number of units of grain that could be traded for one unit of solar panels that would be mutually beneficial to both countries.
E. Assume that Techland adopts a new technology that improves the productivity of grain production but has no effect on the production of solar panels. Draw a correctly labeled graph of the production possibilities curve for Techland, and show the effect of the new technology (see Figure 2).
