Question 1

Trade allows countries to consume more than their ability to produce.

Accepted Answer

A) True 
 B)False

Question 2

Although trade increases productivity, it decreases society's collective knowledge because people specialize in a very limited number of things.

Accepted Answer

A) True 
 B)False

Question 3

Economic growth in the modern era is primarily due to the:

Accepted Answer

A)  increases in the number of people. 
B)  increases in money. 
C)  defining of nation borders. 
D)  creation of new knowledge. 
A)  increases in the number of people. 
B)  increases in money. 
C)  defining of nation borders. 
D)  creation of new knowledge.

Question 4

Gains from international trade are best characterized as potential gains from:

Accepted Answer

A)  importation. 
B)  exportation. 
C)  neither importation nor exportation. 
D)  both importation and exportation. 
A)  importation. 
B)  exportation. 
C)  neither importation nor exportation. 
D)  both importation and exportation.

Question 5

Conan O'Brien hosts the Conan show and Andy Richter, his sidekick, writes for it. Conan needs 4 hours to rehearse and host a good show. It takes Andy 10 hours to do the same. Conan writes one usable joke in an hour, but Andy needs 2 hours to do the same. Gains from trade are largest when Conan hosts the show and Andy writes for the show.

Accepted Answer

A) True 
 B)False

Question 6

If it was impossible to have a comparative advantage, there would be no gains from trade.

Accepted Answer

A) True 
 B)False

Question 7

Trade leads to increased productivity because trade allows people to specialize.

Accepted Answer

A) True 
 B)False

Question 8

The fundamental idea behind the production possibilities frontier is:

Accepted Answer

A)  the idea of absolute advantage. 
B)  the trade-offs that exist in production. 
C)  that economic growth is unlimited. 
D)  that incentives matter. 
A)  the idea of absolute advantage. 
B)  the trade-offs that exist in production. 
C)  that economic growth is unlimited. 
D)  that incentives matter.

Question 9

Anita is a wonderful baker and can bake 10 cakes in a day, but then has no time left to make cookies. If she bakes only cookies, she can make 200 cookies in a day. John can make equally delicious cakes and cookies but can only make seven cakes or 100 cookies in a day. Based on this information, which of the following statements is true?

Accepted Answer

A)  Anita should split her time between cakes and cookies. John should bake cakes. 
B)  Anita should bake cakes and John should bake cookies. 
C)  Anita and John should split their time equally between cakes and cookies. 
D)  Anita should bake cookies and John should bake cakes. 
A)  Anita should split her time between cakes and cookies. John should bake cakes. 
B)  Anita should bake cakes and John should bake cookies. 
C)  Anita and John should split their time equally between cakes and cookies. 
D)  Anita should bake cookies and John should bake cakes.

Question 10

Brazil can produce one unit of sugar cane for one unit of labor and one iPod for eight units of labor, and China can produce one unit of sugar cane for two units of labor and one iPod for four units of labor. Which of the following is true?

Accepted Answer

A)  Before trade, China's opportunity cost of one unit of sugar cane is two iPods. 
B)  China has an absolute advantage in sugar cane production. 
C)  Both parties benefit if they specialize and trade at terms of one unit of sugar cane for two iPods. 
D)  With trade, Brazil should specialize in sugar cane and China in iPods. 
A)  Before trade, China's opportunity cost of one unit of sugar cane is two iPods. 
B)  China has an absolute advantage in sugar cane production. 
C)  Both parties benefit if they specialize and trade at terms of one unit of sugar cane for two iPods. 
D)  With trade, Brazil should specialize in sugar cane and China in iPods.

Question 11

Jack and Jill work at a bakery. In one hour, Jack can decorate either 5 ice-cream cakes or 2 wedding cakes. In one hour, Jill can decorate either 4 ice-cream cakes or 1 wedding cake. Thus, the opportunity cost of decorating an ice-cream cake is _____ for Jack and _____ for Jill.

Accepted Answer

A)  4 wedding cakes; 2.5 wedding cakes 
B)  1/4 wedding cake; 2/5 wedding cake 
C)  2.5 wedding cakes; 4 wedding cakes 
D)  2/5 wedding cake; 1/4 wedding cake 
A)  4 wedding cakes; 2.5 wedding cakes 
B)  1/4 wedding cake; 2/5 wedding cake 
C)  2.5 wedding cakes; 4 wedding cakes 
D)  2/5 wedding cake; 1/4 wedding cake

Question 12

Globalization is:

Accepted Answer

A)  pushed through by politicians while citizens are reacting to disasters and upheavals. 
B)  the advance of human cooperation across national boundaries. 
C)  the advance of human conflict across national boundaries. 
D)  supported only by greedy corporations. 
A)  pushed through by politicians while citizens are reacting to disasters and upheavals. 
B)  the advance of human cooperation across national boundaries. 
C)  the advance of human conflict across national boundaries. 
D)  supported only by greedy corporations.

Question 13

Trade makes people better off when:

Accepted Answer

A)  everyone wants the same things as other people. 
B)  some people are less productive than others. 
C)  people cannot specialize in certain activities. 
D)  people have different preferences. 
A)  everyone wants the same things as other people. 
B)  some people are less productive than others. 
C)  people cannot specialize in certain activities. 
D)  people have different preferences.

Question 14

The enormous variety of goods and services that we consume each day can be attributed mainly to:

Accepted Answer

A)  government regulations. 
B)  home production. 
C)  specialization and trade. 
D)  early craftsmen handing down their knowledge. 
A)  government regulations. 
B)  home production. 
C)  specialization and trade. 
D)  early craftsmen handing down their knowledge.

Question 15

Owen Wilson is an actor who has acted in many action comedy films. In contrast, Tom Cruise has acted in many serious action films. How might the theory of specialization be applied to them?

Accepted Answer

A)  Owen Wilson has fully specialized in action comedy movies while Tom Cruise has fully specialized in serious action movies. 
B)  Due to filmography protectionism, Owen Wilson is unable to secure serious action roles, and Tom Cruise is unable to secure action comedy roles. 
C)  Casting directors see Owen Wilson as relatively better at action comedy roles and Tom Cruise as relatively better at serious action roles and cast them accordingly. 
D)  Owen Wilson does not have the talent necessary to act in more serious films. 
A)  Owen Wilson has fully specialized in action comedy movies while Tom Cruise has fully specialized in serious action movies. 
B)  Due to filmography protectionism, Owen Wilson is unable to secure serious action roles, and Tom Cruise is unable to secure action comedy roles. 
C)  Casting directors see Owen Wilson as relatively better at action comedy roles and Tom Cruise as relatively better at serious action roles and cast them accordingly. 
D)  Owen Wilson does not have the talent necessary to act in more serious films.

Question 16

A country has an absolute advantage in production if:

Accepted Answer

A)  it can produce the same good using fewer inputs than another country. 
B)  it can produce a good using fewer inputs than it takes another country to produce a different good. 
C)  other countries can produce the same good using fewer inputs. 
D)  it has the lowest opportunity cost of producing a good. 
A)  it can produce the same good using fewer inputs than another country. 
B)  it can produce a good using fewer inputs than it takes another country to produce a different good. 
C)  other countries can produce the same good using fewer inputs. 
D)  it has the lowest opportunity cost of producing a good.

Question 17

Iceland produces two goods: Viking hats (Y) and fish (X). Its production possibilities frontier is characterized as: Y = 50 - 2X and tells us that the opportunity cost of catching (producing) an additional unit of fish in Iceland is:

Accepted Answer

A)  increasing in fish production. 
B)  constant in fish production. 
C)  decreasing in fish production. 
D)  unable to be determined from the information given. 
A)  increasing in fish production. 
B)  constant in fish production. 
C)  decreasing in fish production. 
D)  unable to be determined from the information given.

Question 18

High-productivity workers fear trade because they think they cannot compete with workers in low-productivity countries. Low-productivity workers fear trade because they think they cannot compete with workers in high-productivity countries. Which of these fears is justified?

Accepted Answer

A)  The fears of workers in high-productivity countries are justified; the fears of workers in low-productivity countries are not. 
B)  The fears of workers in low-productivity countries are justified; the fears of workers in high-productivity countries are not. 
C)  Both sets of fears are justified. 
D)  Neither set of fears is justified. 
A)  The fears of workers in high-productivity countries are justified; the fears of workers in low-productivity countries are not. 
B)  The fears of workers in low-productivity countries are justified; the fears of workers in high-productivity countries are not. 
C)  Both sets of fears are justified. 
D)  Neither set of fears is justified.

Question 19

The United States and the European Union are groups of semi-independent states that have come together under an agreement whereby resources can travel freely across borders and a common currency is in use. Which of the following statements best explains how this allows for the achievement of economies of scale?

Accepted Answer

A)  Each state or country can now target larger markets and can thus earn more export revenue. 
B)  States and countries no longer have to worry about borders impeding trade. 
C)  Each state or country can adopt large-scale production techniques that allow lower per-unit costs of production. 
D)  The removal of trade borders and a common currency enhances trade between member states. 
A)  Each state or country can now target larger markets and can thus earn more export revenue. 
B)  States and countries no longer have to worry about borders impeding trade. 
C)  Each state or country can adopt large-scale production techniques that allow lower per-unit costs of production. 
D)  The removal of trade borders and a common currency enhances trade between member states.

Question 20

Anita can bake 10 cakes in a day, but has no time left to make cookies. If she bakes only cookies, she can make 200 cookies in a day. John makes equally delicious cakes and cookies but can only make 7 cakes or 100 cookies in a day. Based on this information, which of the following statements is TRUE?

Accepted Answer

A)  Anita has the comparative advantage in the production of cakes. 
B)  John has the comparative advantage in the production of cakes. 
C)  John has the absolute advantage in the production of cookies. 
D)  Anita has the comparative advantage in the production of both cakes and cookies. 
A)  Anita has the comparative advantage in the production of cakes. 
B)  John has the comparative advantage in the production of cakes. 
C)  John has the absolute advantage in the production of cookies. 
D)  Anita has the comparative advantage in the production of both cakes and cookies.

Exam 2: The Power of Trade and Comparative

Trade allows countries to consume more than their ability to produce.

Although trade increases productivity, it decreases society's collective knowledge because people specialize in a very limited number of things.

Economic growth in the modern era is primarily due to the:

Gains from international trade are best characterized as potential gains from:

If it was impossible to have a comparative advantage, there would be no gains from trade.

Trade leads to increased productivity because trade allows people to specialize.

The fundamental idea behind the production possibilities frontier is:

Brazil can produce one unit of sugar cane for one unit of labor and one iPod for eight units of labor, and China can produce one unit of sugar cane for two units of labor and one iPod for four units of labor. Which of the following is true?

Jack and Jill work at a bakery. In one hour, Jack can decorate either 5 ice-cream cakes or 2 wedding cakes. In one hour, Jill can decorate either 4 ice-cream cakes or 1 wedding cake. Thus, the opportunity cost of decorating an ice-cream cake is _____ for Jack and _____ for Jill.

Globalization is:

Trade makes people better off when:

The enormous variety of goods and services that we consume each day can be attributed mainly to:

Owen Wilson is an actor who has acted in many action comedy films. In contrast, Tom Cruise has acted in many serious action films. How might the theory of specialization be applied to them?

A country has an absolute advantage in production if:

Iceland produces two goods: Viking hats (Y) and fish (X). Its production possibilities frontier is characterized as: Y = 50 - 2X and tells us that the opportunity cost of catching (producing) an additional unit of fish in Iceland is:

High-productivity workers fear trade because they think they cannot compete with workers in low-productivity countries. Low-productivity workers fear trade because they think they cannot compete with workers in high-productivity countries. Which of these fears is justified?

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

Jack and Jill work at a bakery. In one hour, Jack can decorate either 5 ice-cream cakes or 2 wedding cakes. In one hour, Jill can decorate either 4 ice-cream cakes or 1 wedding cake. Thus, the opportunity cost of decorating an ice-cream cake is _ for Jack and _ for Jill.