๐ถAP Macroeconomics
FRQ 1 โ Long
Unit 1: Basic Economic Concepts
Practice FRQ 1 of 20
1. Assume that the countries of Techland and Agraria produce only two goods: Industrial Robots and Corn. Both countries have linear production possibilities curves and use the same amount of resources.
- The currency of Techland is the Tech-dollar ($).
- The table below shows the maximum annual production of each good for each country if they use all their resources efficiently.
Table 1: Maximum Annual Production
| Country | Industrial Robots (units) | Corn (tons) |
|---|---|---|
| Techland | 100 | 500 |
| Agraria | 20 | 400 |
A. Draw a correctly labeled graph of the production possibilities curve (PPC) for Techland (Figure 1), with corn on the horizontal axis and industrial robots on the vertical axis. Plot the numerical values of the intercepts based on the data in Table 1. Label a point A that represents efficient production and a point B that represents inefficient production.
B.
i. Calculate the opportunity cost of producing one industrial robot in Techland. Show your work.
ii. Calculate the opportunity cost of producing one industrial robot in Agraria. Show your work.
C.
i. Which country has the comparative advantage in the production of industrial robots? Explain.
ii. Identify a specific numerical value for the terms of trade (in terms of corn) for one industrial robot that would be beneficial for both Techland and Agraria.
D. Draw a correctly labeled graph of the market for corn in Techland (Figure 2). Label the initial equilibrium price and the initial equilibrium quantity .
E. On your graph in part D (Figure 2), show the effect of the new fertilizer on the market for corn. Label the new equilibrium price and the new equilibrium quantity .
F. Will this policy result in a surplus, a shortage, or equilibrium in the market for corn? Explain.
