AP Economics
Unit I: Basic Economic Concepts
Problem Set #2
1. SSEF3 Specialization and Voluntary Exchange
a. Give two examples of how individuals and/or businesses specialize.
b. What does the phrase “voluntary exchange” mean?
c. What does it mean for exchange to be “non-fraudulent”?
d. Explain why both parties who engage in voluntary, non-fraudulent exchange benefit.
2. SSEF6 Productivity and Economic Growth
a. Define productivity
b. How does increased productivity lead to economic growth?
c. What impact will long-run improvements in productivity have on a country’s production
possibilities curve? Draw it and explain.
d. Examine each of the following scenarios. Describe what they can do to improve their
productivity.
i. Jim and Tim work at a hamburger stand. Their boss believes in personal
customer service. Because of this, each employee has to see an order through
the entire way. Each employee must take an order, prepare the food, package
the food, and serve it to the customers. Jim and Tim can each produce about 15
hamburger orders per hour. How could their productivity be improved?
ii. Rebecca and Violet make handmade cloth purses. They are both very adept
(skilled) at their work and have lots of orders. Currently, they have only one
sewing machine in their workshop. How can they improve their productivity?
iii. Lila just took a job that requires her to use Microsoft Access. She is not very
skilled in this program and it takes her a very long time to complete any task.
How could she improve her productivity?
iv. Kyle has an exterminating business. He can only serve about eight households a
day right now because he constantly has to return to his office to check in with
his secretary in order to get information about recently scheduled
appointments. How could he improve his productivity?
e. Given the scenarios above, which method of improving productivity is likely to increase
output per worker by the most? Why?
3. Answer the following questions on comparative and absolute advantage.
a. Define absolute advantage.
b. Define comparative advantage.
c. What does the Law of Comparative Advantage say?
d. Relate the Law of Comparative Advantage to this statement: “People and countries gain
from voluntary exchange.”
4. Examine the data table below.
Mowing Lawn (time it takes to
complete ONE Lawn)
60 minutes
75 minutes
Clyde
Bonnie
Trimming Lawn (time it takes
to complete ONE lawn)
40 minutes
90 minutes
A. Is this an input or an output problem? How can you tell?
B. Which person has the absolute advantage in mowing? Which person has the absolute
advantage in trimming? Explain how you arrived at that answer.
C. What is Clyde’s opportunity cost for mowing one lawn? What is Bonnie’s opportunity cost
of mowing one lawn?
D. What is Clyde’s opportunity cost of trimming one lawn? What is Bonnie’s opportunity cost
of trimming one lawn?
E. Where should each one specialize? How do you know?
5. Create a chart for each of the following problems.
a. First- Identify if it is a output or input question
b. Second-Identify who has the ABSOLUTE ADVANTAGE
c. Third-Identify who has a COMPARATIVE ADVANTAGE
d. Fourth- Identify how they should specialize.
i.
Sara gives 2 haircuts or 1 perm and hour. Megan gives 3 haircuts or 2 perms per
hour.
ii . Justin fixes 16 flats or 8 brakes per day. Tim fixes 14 flats or 8 brakes per day.
ii. Hannah takes 30 minutes to wash dishes and 1 hour to vacuum the house.
Kevin takes 15 minutes to wash dishes and 45 minutes to vacuum.
6. The following figures represent the amount that can be produced with a fixed amount of factor
inputs in one hour.
** Note the underlined portion in the statement above. Why is this important?
A.
B.
C.
D.
E.
F.
Bananas
Sugarcane
Jamaica
100
50
Puerto Rico
160
40
Is this an input or an output problem? How can you tell?
Which country has the absolute advantage in bananas? Which country has the absolute advantage
in sugarcane? Explain how you arrive at that answer.
What is Jamaica’s opportunity cost for producing one unit of bananas? What is Puerto Rico’s
opportunity cost for producing one unit of sugarcane?
Which country has the comparative advantage in bananas? Which country has the comparative
advantage in sugarcane? Explain how you arrive at that answer?
Should these countries trade? If so, how should they specialize and why?
Identify agreeable terms of trade.
7. Americans produce 50 computers or 50 TVs per hour. Chinese produce 30 computers or 40 TVs
per hour.
a. Create a table comparing the production capabilities of the US and China.
b. Draw a PPC graph for each showing their output capabilities.
c. Is this an input or output problem? How can you tell?
d. Which country should specialize in TVs? Computers? Explain how you know.
e. Identify agreeable terms of trade.
8. Textbook Questions:
a. P.29 #1-5, p.30 #1 a-e
9. Free trade between nations:
A. should be based on absolute advantage.
B. will allow wealthy nations to exploit less developed nations.
C. will shift the domestic production possibility curve to the right.
D .will allow for greater levels of consumption than without trade.
F. will benefit less developed nations at the expense of wealthy nations.
Sweden and Finland produce only two goods, herring and cell phones, and this table shows the
maximum amount that each nation can produce of the two goods.
Sweden
Finland
Herring
100,000
50,000
Cell phones
10,000
10,000
Table 4-3: Comparative Advantage I
10. Use Table 4-3. Sweden has a comparative advantage in producing:
A. cell phones only.
B. herring only.
C. both cell phones and herring.
D. neither cell phones nor herring.
E. a combination of cell phones and herring.
11. Use Table 4-3. The opportunity cost of producing 1 unit of herring for Sweden is:
A. 10 units of cell phones.
B. 1/5 unit of cell phones.
C. 5 units of cell phones.
D. 1/10 unit of cell phones.
E. 10 units of herring.