AP Macroeconomics : How to use tables

Study concepts, example questions & explanations for AP Macroeconomics

varsity tutors app store varsity tutors android store

Example Questions

Example Question #4 : Ap Macroeconomics

Countries A & B can produce the following maximum quantities of cars and computers (when they use all their resources to produce one of the goods):

Country A: 500 computers OR 200 cars

Country B: 300 computers OR 100 cars

Which of the following is true about their trade potential?

Possible Answers:

Country A and Country B can both benefit from trade since each has a comparative advantage in one of the goods

If Country A and Country B were to enter into a trade agreement, Country A would be the only party to benefit

If Country A and Country B were to enter into a trade agreement, Country B would be the only party to benefit

None of the other answers

Country A would not accept any trade terms with Country B since it can produce more of both good A and good B

Correct answer:

Country A and Country B can both benefit from trade since each has a comparative advantage in one of the goods

Explanation:

Trade does not depend on absolute advantage (who can produce the most of both goods) but comparative advantage (who can produce one good cheaper than the other). Country A can produce cars more cheaply than country B (1 car costs 2.5 computers for country A while it costs 3 computers for country B). Country B on the other hand can produce computers more cheaply than country A (1 computer costs 0.3 cars in country B while it costs 0.4 cars in country A). Thus they will both benefit from trade. 

Example Question #1 : How To Use Tables

Countries A & B can produce the following maximum quantities of cars and computers (when they use all their resources to produce one of the goods):

Country A: 500 computers OR 200 cars

Country B: 300 computers OR 100 cars

 

If these countries were to trade, which of the following options give possible terms of trade?

Possible Answers:

Correct answer:

Explanation:

To answer this question, you would have to tabulate the opportunity costs of both Country A and Country B in the production of cars and computers, this will allow you to consider what trades are possible and which are not. This would be the result of the table:

Opp costs of computer production

Country A: 1 computer = 0.4 cars

Country B: 1 computer = 0.3 cars

 

Opp costs of car production

Country A: 1 car = 2.5 computers

Country B: 1 car = 3 computers

 

This tells us that Country B will produce the majority of the computers, since they have a comparative advantage in that, and Country A will produce most of the cars since they have a comparative advantage in that. It follows then, that any terms of trade where Country A has to pay more than 0.4 cars for a computer would be unacceptable since then they would be better off making them themselves. Similarly, any terms of trade where Country B has to pay more than 3 computers to get a car would be unacceptable for the same reason. The only acceptable terms of trade in the options are 1 computer = 0.35 cars.

Example Question #2 : How To Use Tables

Countries A & B can produce the following maximum quantities of cars and computers (when they use all their resources to produce one of the goods):

Country A: 500 computers OR 200 cars

Country B: 300 computers OR 100 cars

 

If these countries were to trade, which of the following options give the trade outcomes that would result?

Possible Answers:

There would be no agreeable terms of trade since Country A produces more cars and more computers than Country B does.

Country A would produce most of the cars and Country B would produce most of the computers

Country B would produce most of the cars and Country A would produce most of the computers

Country A would produce more cars and more computers and trade them with Country B since they have a comparative advantage in producing both goods 

There is not enough information to answer the question as stated

Correct answer:

Country A would produce most of the cars and Country B would produce most of the computers

Explanation:

To answer this question, you would have to tabulate the opportunity costs of both Country A and Country B in the production of cars and computers, this will allow you to consider what trades are possible and which are not. This would be the result of the table:

Opp costs of computer production

Country A: 1 computer = 0.4 cars

Country B: 1 computer = 0.3 cars

 

Opp costs of car production

Country A: 1 car = 2.5 computers

Country B: 1 car = 3 computers

 

This tells us that Country B will produce the majority of the computers, since they have a comparative advantage in that, and Country A will produce most of the cars since they have a comparative advantage in that. 

Learning Tools by Varsity Tutors

Incompatible Browser

Please upgrade or download one of the following browsers to use Instant Tutoring: