AP Macroeconomics Page 1 of 4

Assignment: Apply Concepts of Production and Trade

User Name:_______________ Instructor: _________________ Date:__________

(print clearly)

1. The advantage of trade is a very important concept in economics. In examining trade

between two individuals or two countries, you usually see at least one side specializing
in the production of one good.

A. What concept is most important in determining which good a person or

nation will specialize in the production of? How can you tell which good a
person or country will specialize in? (4 points)

B. It's said that trade creates wealth. If wealth is determined by the total
value of goods and services (including environmental goods and leisure
time) people have, explain why allowing people to specialize and trade will
make them wealthier. (4 points)

2. Generally, sunk costs don't affect decisions made by either consumers or firms, although
sometimes it might seem that they do. For example, suppose half way through a clinical
trial to develop a drug for depression, the firm decides to reconsider the viability of
continuing the clinical trial.

A. Are the costs incurred up to that point considered as sunk costs? (3 points)

B. Suppose that the costs of continuing the trial cause the firm to stop the
development of the drug. Are the costs of continuing the trial considered
sunk costs? (3 points)

_____________
Copyright © 2021 Apex Learning. See Terms of Use for further information.
AP Macroeconomics Page 2 of 4
Assignment: Apply Concepts of Production and Trade

User Name:_______________ Instructor: _________________ Date:__________

(print clearly)

3. Economic Growth

A. If an economy is experiencing economic growth, what happens to its PPF?

Show your answer on a graph, using the nation of Recyclaria, where the
people produce bottles and paper. (3 points)

B. Give three examples of things that would cause economic growth. (6 points)

4. When we draw a production possibilities frontier (PPF), we’re basically limited to two
goods. This isn’t terribly realistic, but occasionally it lets us make some very important
points. Consider that goods and services can be broadly defined as either consumption
goods and services, such as hamburgers, televisions, and manicures, or production
goods and services, such as machinery, mainframe computers, and education.

A. Draw a PPF graph with consumption goods and production goods on the two
axes. Mark a point on the PPF where there are a lot of consumption goods
and few production goods, and label it A. Mark a point on the PPF where
there are few consumption goods and a lot of production goods, and label it
B. (3 points)

_____________
Copyright © 2021 Apex Learning. See Terms of Use for further information.
AP Macroeconomics Page 3 of 4
Assignment: Apply Concepts of Production and Trade

User Name:_______________ Instructor: _________________ Date:__________

(print clearly)

B. Consumption goods give us enjoyment today, but production goods allow us

to increase the amount we can produce in the future. On two separate
graphs, draw PPFs that represent the production possibilities this year. On
the first graph, show how the PPF will shift from this year to next year if
most of the goods and services produced this year are consumption goods
and services. On the second graph, show how the PPF will shift from this
year to the next if most of the goods and services produced this year are
production goods and services. (6 points)

5. Understanding the difference between absolute and comparative advantage

isn't easy. Define absolute advantage and comparative advantage in words. (8
points)

6. Table 2.1 shows how many trucks and game consoles that can be produced in a country
with a fixed amount of input.

Table 2.1: Production of Trucks and Game Consoles in

Country X
Trucks (millions) Game Consoles (millions)
50 0
48 10
46 20
43 30
40 40
35 50
10 60
_____________
0 70
Copyright © 2021 Apex Learning. See Terms of Use for further information.
AP Macroeconomics Page 4 of 4
Assignment: Apply Concepts of Production and Trade

User Name:_______________ Instructor: _________________ Date:__________

(print clearly)

A. What is the opportunity cost in trucks if Country X produces 50 game

consoles instead of 40? What is the opportunity cost in trucks if Country X
produces 60 game consoles instead of 50? (2 points)

B. Is the opportunity cost of producing more amounts of trucks increasing,

decreasing, or remaining the same? (2 points)

C. What is the economic justification for the answer in part B, above? (2 points)

D. What would the graphical display of this production possibilities curve look
like? (5 points)

E. What would happen to the production possibilities curve if country X

developed a new technology that is more efficient to produce both game
consoles and trucks? Only game consoles? Only trucks? (9 points)

_____________
Copyright © 2021 Apex Learning. See Terms of Use for further information.