AP Macroeconomics FRQ

1. Toyota and Honda both produce cars and trucks. The table shows the number of tons of steel, the only input needed to produce one car and one truck. Cars Trucks Toyota 3 tons 1 ton Honda 3 tons 2 tons A. If Toyota and Honda have the same amount of steel reserves, which company has an absolute advantage in the production of Trucks? Explain using numbers. B. Which company has a comparative advantage in the production of Trucks? Explain using numbers. C. State a potential terms of trade that would benefit both. (Terms of trade must be stated in either: "1 car = ??" or "1 truck = ??") 2. Assume there is a decrease in the number of trucks imported from Japan (Yen) to the U.S. (Dollar). A. Using a correctly labeled graph of the foreign exchange market for the dollar, show how the value of the dollar would change relative to the yen in a flexible exchange rate system