Question 1

Without trade, specialization is impractical.

Accepted Answer

A) True 
 B)False

Question 2

Everyone, from the most to the least skilled to the most and least educated, can benefit from trade.

Accepted Answer

A) True 
 B)False

Question 3

Because Chinese wages are much lower than wages in the United States, the Chinese can outcompete the United States in everything.

Accepted Answer

A) True 
 B)False

Question 4

Utilizing comparative advantage can best be exemplified as:

Accepted Answer

A)  your lawyer word-processing her own legal briefs. 
B)  the CEO of Microsoft programming his own computer. 
C)  the president of your university teaching a class again. 
D)  a world-renowned chef hiring someone to cook meals for his family. 
A)  your lawyer word-processing her own legal briefs. 
B)  the CEO of Microsoft programming his own computer. 
C)  the president of your university teaching a class again. 
D)  a world-renowned chef hiring someone to cook meals for his family.

Question 5

Use the following to answer questions:
Figure: Comparative Advantage  
-(Figure: Comparative Advantage) The figure illustrates both the U.S. and Japanese production possibilities frontiers for TVs and wheat. Based on this information, which of the following is TRUE?

Accepted Answer

A)  The opportunity cost of producing a TV in the United States is 1/3 of a bushel of wheat. 
B)  The opportunity cost of producing a TV in the United States is 900 bushels of wheat. 
C)  The opportunity cost of producing a TV in Japan is 2 bushels of wheat. 
D)  The opportunity cost of producing a bushel of wheat in Japan is 2 TVs. 
A)  The opportunity cost of producing a TV in the United States is 1/3 of a bushel of wheat. 
B)  The opportunity cost of producing a TV in the United States is 900 bushels of wheat. 
C)  The opportunity cost of producing a TV in Japan is 2 bushels of wheat. 
D)  The opportunity cost of producing a bushel of wheat in Japan is 2 TVs.

Question 6

Adam Smith:

Accepted Answer

A)  believed that trade in local communities is good for the economy, but trading with people located in foreign countries is bad for the economy. 
B)  did not discuss or have an opinion about international trade. 
C)  argued that it is beneficial to buy a product if the seller can sell it to us cheaper than we can make it for ourselves, regardless of the product's country of origin. 
D)  believed that trade in local communities is bad for the economy, but trading with people located in foreign countries is good for the economy. 
A)  believed that trade in local communities is good for the economy, but trading with people located in foreign countries is bad for the economy. 
B)  did not discuss or have an opinion about international trade. 
C)  argued that it is beneficial to buy a product if the seller can sell it to us cheaper than we can make it for ourselves, regardless of the product's country of origin. 
D)  believed that trade in local communities is bad for the economy, but trading with people located in foreign countries is good for the economy.

Question 7

Gains from trade are largest when two parties are similar in terms of opportunity costs of production.

Accepted Answer

A) True 
 B)False

Question 8

The production possibilities frontier's negative slope illustrates the notion of trade-offs-producing more units of one good reduces the amount of another good's production.

Accepted Answer

A) True 
 B)False

Question 9

Two persons each produce two identical goods. Which of the following is true about their absolute and comparative advantages in the production of these two goods?

Accepted Answer

A)  One person can have an absolute advantage in both goods but not a comparative advantage in both goods. 
B)  One person can have a comparative advantage in both goods but not an absolute advantage in both goods. 
C)  One person can have neither an absolute nor a comparative advantage in either good. 
D)  Both persons can always have both an absolute and comparative advantage in both goods. 
A)  One person can have an absolute advantage in both goods but not a comparative advantage in both goods. 
B)  One person can have a comparative advantage in both goods but not an absolute advantage in both goods. 
C)  One person can have neither an absolute nor a comparative advantage in either good. 
D)  Both persons can always have both an absolute and comparative advantage in both goods.

Question 10

A country has a comparative advantage in producing one good if its labor cost is lower than that for other countries.

Accepted Answer

A) True 
 B)False

Question 11

Two countries that specialize where they have a comparative advantage and then trade with each other will experience increases in:
I. wages in both countries.
II. total output in both countries.
III. living standards in both countries.

Accepted Answer

A)  I and II only 
B)  II and III only 
C)  II only 
D)  I, II, and III 
A)  I and II only 
B)  II and III only 
C)  II only 
D)  I, II, and III

Question 12

Trade tends to:

Accepted Answer

A)  increase wages in developed countries, but decrease wages in lesser-developed countries. 
B)  decrease wages in developed countries, but increase wages in lesser-developed countries. 
C)  decrease wages in all countries. 
D)  increase wages in all countries. 
A)  increase wages in developed countries, but decrease wages in lesser-developed countries. 
B)  decrease wages in developed countries, but increase wages in lesser-developed countries. 
C)  decrease wages in all countries. 
D)  increase wages in all countries.

Question 13

Use the following to answer questions:
Figure: PPF Goods X & Y  
-(Figure: PPF Goods X & Y) Refer to the figure. Which of the points representing various consumption possibilities for the country portrayed above is only attainable through foreign trade?

Accepted Answer

A)  Point A 
B)  Point B 
C)  Point C 
D)  Both points C and B 
A)  Point A 
B)  Point B 
C)  Point C 
D)  Both points C and B

Question 14

James and Linda must prepare a presentation for their marketing class. As part of their presentation, they must do a marketing plan and prepare 40 PowerPoint slides. It would take James 5 hours to do the required plan and 5 hours to prepare the slides. It would take Linda 6 hours to do the plan and 10 hours to prepare the slides.
a. How much time would it take the two to complete the project if they divide the writing of the marketing plan equally and the development of the slides equally?
b. How much time would it take the two to complete the project if they use comparative advantage and specialize in writing the marketing plan or preparing slides?
c. If James and Linda have the same opportunity cost of $5 per hour, is there a better solution than for each to specialize?

Accepted Answer

5 hours to work on the slides. This is a

Question 15

Use the following to answer questions:
Figure: PPF Nickel & Textiles  
-(Figure: PPF Nickel & Textiles) Refer to the figure. What is the maximum amount of textiles China can produce?

Accepted Answer

A)  10 tons 
B)  8 tons 
C)  6 tons 
D)  4 tons 
A)  10 tons 
B)  8 tons 
C)  6 tons 
D)  4 tons

Question 16

One of the outcomes of specialization is that it leads to _____, which _____ the average cost of production.

Accepted Answer

A)  smaller-scale production; lowers 
B)  smaller-scale production; raises 
C)  larger-scale production; raises 
D)  larger-scale production; lowers 
A)  smaller-scale production; lowers 
B)  smaller-scale production; raises 
C)  larger-scale production; raises 
D)  larger-scale production; lowers

Question 17

Gains from trade are largest when two parties are similar in terms of preferences.

Accepted Answer

A) True 
 B)False

Question 18

Globalization is the advance of human cooperation across national boundaries.

Accepted Answer

A) True 
 B)False

Question 19

What are the three major benefits of trade? Explain briefly.

Accepted Answer

Trade requires people or countries to sp

Question 20

Iceland produces two goods: Viking hats (Y) and fish (X). Its production possibilities frontier is characterized as: Y = 50 - 2X. What is the opportunity cost of producing a tenth unit of fish (i.e., going from nine units of fish production to 10)?

Accepted Answer

A) 0.5 units of fish 
B) 2 units of fish 
C) 0.5 Viking hats 
D) 2 Viking hats 
A) 0.5 units of fish 
B) 2 units of fish 
C) 0.5 Viking hats 
D) 2 Viking hats

Exam 2: The Power of Trade and Comparative

Without trade, specialization is impractical.

Everyone, from the most to the least skilled to the most and least educated, can benefit from trade.

Because Chinese wages are much lower than wages in the United States, the Chinese can outcompete the United States in everything.

Utilizing comparative advantage can best be exemplified as:

Use the following to answer questions: Figure: Comparative Advantage -(Figure: Comparative Advantage) The figure illustrates both the U.S. and Japanese production possibilities frontiers for TVs and wheat. Based on this information, which of the following is TRUE?

Adam Smith:

Gains from trade are largest when two parties are similar in terms of opportunity costs of production.

The production possibilities frontier's negative slope illustrates the notion of trade-offs-producing more units of one good reduces the amount of another good's production.

Two persons each produce two identical goods. Which of the following is true about their absolute and comparative advantages in the production of these two goods?

A country has a comparative advantage in producing one good if its labor cost is lower than that for other countries.

Two countries that specialize where they have a comparative advantage and then trade with each other will experience increases in: I. wages in both countries. II. total output in both countries. III. living standards in both countries.

Trade tends to:

Use the following to answer questions: Figure: PPF Goods X & Y -(Figure: PPF Goods X & Y) Refer to the figure. Which of the points representing various consumption possibilities for the country portrayed above is only attainable through foreign trade?

Use the following to answer questions: Figure: PPF Nickel & Textiles -(Figure: PPF Nickel & Textiles) Refer to the figure. What is the maximum amount of textiles China can produce?

One of the outcomes of specialization is that it leads to _____, which _____ the average cost of production.

Gains from trade are largest when two parties are similar in terms of preferences.

Globalization is the advance of human cooperation across national boundaries.

What are the three major benefits of trade? Explain briefly.

Iceland produces two goods: Viking hats (Y) and fish (X). Its production possibilities frontier is characterized as: Y = 50 - 2X. What is the opportunity cost of producing a tenth unit of fish (i.e., going from nine units of fish production to 10)?

The Big Ideas

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters

One of the outcomes of specialization is that it leads to _, which _ the average cost of production.