Aim for FiveMacroeconomics

Short free-response question

Computers and shirts

  • Unit 1
  • 5 points
  • About 12 minutes

You can use a calculator on this question, just like on exam day.

A shorter question on one or two models, often with data in a table. You might calculate something like an unemployment rate, real GDP or the spending change needed to close a gap, draw a labeled graph (described in words on this site), and explain an effect. On the exam: Questions 2 and 3 of 3 in Section II; each is worth a quarter of the section score, with about 12 minutes suggested for each. A four-function calculator is allowed.

The question and its sources

Alvar and Bren are two countries that produce computers and shirts. The table shows the maximum number of each good that one worker in each country can produce in a day. Assume each country has the same number of workers and opportunity costs are constant.

Table 1. Output per worker per day

CountryComputersShirts
Alvar420
Bren216

Source: Hypothetical data

Suggested time: 12 minutes

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Part (a)

1 point

Identify which country has an absolute advantage in producing shirts.

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Part (b)

1 point

Calculate Bren's opportunity cost of producing one computer. Show your work.

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Part (c)

1 point

Identify which country has a comparative advantage in producing shirts. Explain using opportunity costs.

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Part (d)

1 point

Suppose the two countries specialize according to comparative advantage and trade at a rate of 1 computer for 6 shirts. Will both countries gain from this trade? Explain.

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Part (e)

1 point

Would Bren agree to trade 9 shirts for 1 computer? Explain.

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