AP Macroeconomics Flashcards: Comparative Advantage and Gains from Trade
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
Review key ideas with interactive flashcards. This set includes 11 cards to help you master important concepts.
A country can produce either 10 tons of wheat or 20 tons of corn. What is the opportunity cost of producing 1 ton of wheat?
The opportunity cost of producing 1 ton of wheat is 2 tons of corn (20 corn / 10 wheat), which is the amount of corn given up.
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A country can produce either 10 tons of wheat or 20 tons of corn. What is the opportunity cost of producing 1 ton of wheat?
The opportunity cost of producing 1 ton of wheat is 2 tons of corn (20 corn / 10 wheat), which is the amount of corn given up.
What is the primary benefit of specializing according to comparative advantage and then trading?
The primary benefit is achieving consumption opportunities that lie beyond the producer's own Production Possibilities Curve (PPC).
How does specialization and trade affect a country's Production Possibilities Curve (PPC)?
Specialization and trade do not change the PPC itself, but they allow a country to achieve a level of consumption at a point outside of its PPC.
What are 'terms of trade'?
Terms of trade are the agreed-upon rate of exchange between two goods under which mutually beneficial trade can occur.
What determines the range for mutually beneficial terms of trade?
The range for mutually beneficial terms of trade is determined by the opportunity costs of the two producers involved in the exchange.
What is absolute advantage?
Absolute advantage is a situation where a producer can create more of a good or service than another producer using the same amount of resources.
According to what principle should producers specialize to achieve gains from trade?
Producers should specialize according to their comparative advantage, which creates exchange opportunities leading to gains from trade.
What is comparative advantage?
Comparative advantage is a situation where a producer can create a good or service at a lower opportunity cost than another producer.
If Country A can produce 100 cars or 50 planes and Country B can produce 80 cars or 20 planes, which country has the absolute advantage in car production?
Country A has the absolute advantage in car production because it can produce more cars (100) than Country B (80) with the same resources.
What is the key difference between absolute and comparative advantage?
Absolute advantage focuses on producing a greater quantity, while comparative advantage focuses on producing with a lower opportunity cost.
If Country X's opportunity cost for 1 computer is 2 phones, and Country Y's is 4 phones, what is a mutually beneficial term of trade for 1 computer?
A mutually beneficial term of trade would be any price between 2 and 4 phones for one computer, as this falls between their respective opportunity costs.