Question 1

Which of the following statements shows how absolute advantage can be distinguished from comparative advantage?

Accepted Answer

A)  Absolute advantage refers to the ability to produce a good using fewer inputs, while comparative advantage is based on the monthly amount. 
B)  Absolute advantage is based on the yearly production amount that a country can produce, while comparative advantage is based on the monthly production amount. 
C)  Absolute advantage refers to the ability to produce a larger amount of goods with the same number of inputs, whereas comparative advantage refers to the ability to have the lowest opportunity cost of production. 
D)  Absolute advantage is based on the amount of land a country has to use, while comparative advantage is based on the cost of the labor. 
A)  Absolute advantage refers to the ability to produce a good using fewer inputs, while comparative advantage is based on the monthly amount. 
B)  Absolute advantage is based on the yearly production amount that a country can produce, while comparative advantage is based on the monthly production amount. 
C)  Absolute advantage refers to the ability to produce a larger amount of goods with the same number of inputs, whereas comparative advantage refers to the ability to have the lowest opportunity cost of production. 
D)  Absolute advantage is based on the amount of land a country has to use, while comparative advantage is based on the cost of the labor.

Question 2

The ability of one producer to produce one good or service using fewer inputs than another producer is:

Accepted Answer

A)  comparative advantage. 
B)  absolute advantage. 
C)  opportunity cost. 
D)  competition. 
A)  comparative advantage. 
B)  absolute advantage. 
C)  opportunity cost. 
D)  competition.

Question 3

The wage rate in India is lower than the wage rate in the United States because Indian workers are more productive than U.S. workers.

Accepted Answer

A) True 
 B)False

Question 4

David sells his car, which he considers worthless, to Cameron for $200. Which of the following statements is true?

Accepted Answer

A)  David and Cameron must have different preferences for the car. 
B)  This trade did not create value because Cameron is buying a car that David considers worthless. 
C)  Cameron is the only one made better off by the trade. 
D)  David is made better off by the trade, but Cameron is made worse off. 
A)  David and Cameron must have different preferences for the car. 
B)  This trade did not create value because Cameron is buying a car that David considers worthless. 
C)  Cameron is the only one made better off by the trade. 
D)  David is made better off by the trade, but Cameron is made worse off.

Question 5

The opportunity cost of producing a particular good refers to:

Accepted Answer

A)  how much of something else must be given up to produce one additional unit of the good. 
B)  how much of a good can be produced with the existing technology and resources. 
C)  the total cost of production, including wages. 
D)  the marginal cost of production. 
A)  how much of something else must be given up to produce one additional unit of the good. 
B)  how much of a good can be produced with the existing technology and resources. 
C)  the total cost of production, including wages. 
D)  the marginal cost of production.

Question 6

According to the theory of trade, if two countries trade with each other:

Accepted Answer

A)  consumption in one country will fall and wages in that country will also fall. 
B)  wage costs will remain low if both countries specialize in producing the goods for which they have a comparative advantage. 
C)  trade raises labor productivity and wages of both countries. 
D)  wages in the country with a comparative advantage will rise and wages in the country without a comparative advantage will fall. 
A)  consumption in one country will fall and wages in that country will also fall. 
B)  wage costs will remain low if both countries specialize in producing the goods for which they have a comparative advantage. 
C)  trade raises labor productivity and wages of both countries. 
D)  wages in the country with a comparative advantage will rise and wages in the country without a comparative advantage will fall.

Question 7

Suppose the United States is more productive than China at making both T-shirts and cell phones. The theory of comparative advantage suggests that consumption in both countries will:

Accepted Answer

A)  increase if the United States produces both goods. 
B)  increase if each country specializes in producing the good with a lower opportunity cost. 
C)  not change if China produces either T-shirts or cell phones. 
D)  remain unchanged. 
A)  increase if the United States produces both goods. 
B)  increase if each country specializes in producing the good with a lower opportunity cost. 
C)  not change if China produces either T-shirts or cell phones. 
D)  remain unchanged.

Question 8

A producer has a comparative advantage over other producers if his production of the good involves:

Accepted Answer

A)  more inputs. 
B)  fewer inputs. 
C)  a higher opportunity cost. 
D)  a lower opportunity cost. 
A)  more inputs. 
B)  fewer inputs. 
C)  a higher opportunity cost. 
D)  a lower opportunity cost.

Question 9

Which of the following is NOT true regarding the production possibilities frontier (PPF)?

Accepted Answer

A)  The PPF shows the combination of goods that a country can produce given its current productivity and supply of resources. 
B)  The PPF illustrates the trade-offs that exist in the production of goods. 
C)  The PPF shows us that gains from trade are maximized when countries produce goods for which they have an absolute advantage in production. 
D)  The PPF illustrates the fundamental ideas of scarcity and opportunity cost. 
A)  The PPF shows the combination of goods that a country can produce given its current productivity and supply of resources. 
B)  The PPF illustrates the trade-offs that exist in the production of goods. 
C)  The PPF shows us that gains from trade are maximized when countries produce goods for which they have an absolute advantage in production. 
D)  The PPF illustrates the fundamental ideas of scarcity and opportunity cost.

Question 10

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. According to this scenario, _____ has a comparative advantage in decorating ice-cream cakes and _____ has a comparative advantage in decorating wedding cakes.

Accepted Answer

A)  Jack; Jack 
B)  Jill; Jill 
C)  Jack; Jill 
D)  Jill; Jack 
A)  Jack; Jack 
B)  Jill; Jill 
C)  Jack; Jill 
D)  Jill; Jack

Question 11

The trade networks of the Roman Empire:

Accepted Answer

A)  fell apart in the Medieval era, leading to the Dark Ages. 
B)  were not of great importance. 
C)  show that globalization is a new phenomenon. 
D)  did not facilitate the transport of goods from different parts of the world. 
A)  fell apart in the Medieval era, leading to the Dark Ages. 
B)  were not of great importance. 
C)  show that globalization is a new phenomenon. 
D)  did not facilitate the transport of goods from different parts of the world.

Question 12

As trade becomes more widespread, specialization ______, which in turn ______ productivity.

Accepted Answer

A)  decreases; decreases 
B)  increases; increases 
C)  decreases; increases 
D)  increases; decreases 
A)  decreases; decreases 
B)  increases; increases 
C)  decreases; increases 
D)  increases; decreases

Question 13

Knowledge increases ____________ and specialization __________ total output.

Accepted Answer

A)  education; decreases 
B)  productivity; increases 
C)  perception; increases 
D)  economies of scale; decreases 
A)  education; decreases 
B)  productivity; increases 
C)  perception; increases 
D)  economies of scale; decreases

Question 14

In Narnia, one binky can be produced with two workers and one sippy cup can be produced with 0.25 workers. In Bedrock, one binky can be produced with one worker and one sippy cup can be produced with 0.50 workers.
a. What is the opportunity cost of producing one sippy cup in Narnia and in Bedrock?
b. Which country has the comparative advantage in sippy cups?
c. Suppose that each country has 100 workers and completely specializes in its comparative advantage. How many units of output of sippy cups and binkys will each country produce?
d. Before trade, Narnia produces 25 binkys and 200 sippy cups, and Bedrock produces 50 binkys and 100 sippy cups. Show how specialization and free trade can make each country better off than it was before the trade situation.

Accepted Answer

binkys.
b. Narnia has the comparative ad

Question 15

The ______ shows all combinations of goods that a country can produce given its productivity and ______.

Accepted Answer

A)  comparative advantage frontier; market prices 
B)  absolute advantage frontier; supply of inputs 
C)  production possibilities frontier; supply of inputs 
D)  production possibilities frontier; market prices 
A)  comparative advantage frontier; market prices 
B)  absolute advantage frontier; supply of inputs 
C)  production possibilities frontier; supply of inputs 
D)  production possibilities frontier; market prices

Question 16

Trade refers to the exchange of goods or services between two parties.

Accepted Answer

A) True 
 B)False

Question 17

Which statement is TRUE?

Accepted Answer

A)  It is virtually impossible for a country to be the low-cost producer of all goods and services. 
B)  The benefits of trade depend on absolute advantage, not comparative advantage. 
C)  A country could have a comparative advantage in producing everything. 
D)  A country that has the absolute advantage in production will also have the comparative advantage. 
A)  It is virtually impossible for a country to be the low-cost producer of all goods and services. 
B)  The benefits of trade depend on absolute advantage, not comparative advantage. 
C)  A country could have a comparative advantage in producing everything. 
D)  A country that has the absolute advantage in production will also have the comparative advantage.

Question 18

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. From these numbers, we infer that Conan has a comparative advantage in the production of:

Accepted Answer

A)  show hosting. 
B)  joke writing. 
C)  neither show hosting nor joke writing. 
D)  both show hosting and joke writing. 
A)  show hosting. 
B)  joke writing. 
C)  neither show hosting nor joke writing. 
D)  both show hosting and joke writing.

Question 19

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. Conan's opportunity cost of writing a single usable joke is:

Accepted Answer

A)  0.2 units of hosting. 
B)  0.25 units of hosting. 
C)  0.5 units of hosting. 
D)  1 unit of hosting. 
A)  0.2 units of hosting. 
B)  0.25 units of hosting. 
C)  0.5 units of hosting. 
D)  1 unit of hosting.

Question 20

In Colombia, it takes three workers to produce two pounds of coffee. In Mexico, it takes four workers to produce one pound of coffee. Therefore:

Accepted Answer

A)  Colombia has a comparative advantage in the production of coffee. 
B)  Mexico has a comparative advantage in the production of coffee. 
C)  in Colombia, the opportunity cost of producing one pound of coffee is two-thirds. 
D)  Colombia has an absolute advantage in the production of coffee. 
A)  Colombia has a comparative advantage in the production of coffee. 
B)  Mexico has a comparative advantage in the production of coffee. 
C)  in Colombia, the opportunity cost of producing one pound of coffee is two-thirds. 
D)  Colombia has an absolute advantage in the production of coffee.

Exam 2: The Power of Trade and Comparative

Which of the following statements shows how absolute advantage can be distinguished from comparative advantage?

The ability of one producer to produce one good or service using fewer inputs than another producer is:

The wage rate in India is lower than the wage rate in the United States because Indian workers are more productive than U.S. workers.

David sells his car, which he considers worthless, to Cameron for $200. Which of the following statements is true?

The opportunity cost of producing a particular good refers to:

According to the theory of trade, if two countries trade with each other:

Suppose the United States is more productive than China at making both T-shirts and cell phones. The theory of comparative advantage suggests that consumption in both countries will:

A producer has a comparative advantage over other producers if his production of the good involves:

Which of the following is NOT true regarding the production possibilities frontier (PPF)?

The trade networks of the Roman Empire:

As trade becomes more widespread, specialization ______, which in turn ______ productivity.

Knowledge increases ____________ and specialization __________ total output.

The ______ shows all combinations of goods that a country can produce given its productivity and ______.

Trade refers to the exchange of goods or services between two parties.

Which statement is TRUE?

In Colombia, it takes three workers to produce two pounds of coffee. In Mexico, it takes four workers to produce one pound of coffee. Therefore:

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

As trade becomes more widespread, specialization , which in turn productivity.

Knowledge increases __ and specialization total output.

The shows all combinations of goods that a country can produce given its productivity and .