Question 1

Which of the following best characterizes the relationship between the parties to a trade and the gains from trade?

Accepted Answer

A)  Gains from trade are fueled by differences in preferences and differences in opportunity costs of production. 
B)  Gains from trade are fueled by differences in preferences only. 
C)  Gains from trade are fueled by differences in opportunity costs of production only. 
D)  Gains from trade are greatest when there are no differences between the two parties to trade. 
A)  Gains from trade are fueled by differences in preferences and differences in opportunity costs of production. 
B)  Gains from trade are fueled by differences in preferences only. 
C)  Gains from trade are fueled by differences in opportunity costs of production only. 
D)  Gains from trade are greatest when there are no differences between the two parties to trade.

Question 2

Use the following to answer questions:
Figure: Steel and Lumber  
-(Figure: Steel and Lumber) In the PPF diagram, China has a comparative advantage in ________ and an absolute advantage in _______.

Accepted Answer

A)  lumber; neither of the goods 
B)  steel; lumber 
C)  steel; neither of the goods 
D)  lumber; steel 
A)  lumber; neither of the goods 
B)  steel; lumber 
C)  steel; neither of the goods 
D)  lumber; steel

Question 3

International trade is based on the theory of absolute advantage.

Accepted Answer

A) True 
 B)False

Question 4

Adam Smith advocated the benefits of:

Accepted Answer

A)  protectionism. 
B)  trade tariffs over trade quotas. 
C)  international trade. 
D)  absolute advantage. 
A)  protectionism. 
B)  trade tariffs over trade quotas. 
C)  international trade. 
D)  absolute advantage.

Question 5

Increased communication speed played a significant role in recent developments that led to increased trade and globalization?

Accepted Answer

A) True 
 B)False

Question 6

Use the following to answer questions:
Figure: Computers and Books  
-(Figure: Computers and Books) According to the figure, if country A produces only the good for which it has a comparative advantage and then consumes the other good by exchanging computers for books, then:

Accepted Answer

A)  country A will consume outside its PPF but country B will consume inside its PPF. 
B)  country A will consume inside its PPF but country B will consume outside its PPF. 
C)  both countries will consume inside their own PPFs. 
D)  both countries will consume outside their own PPFs. 
A)  country A will consume outside its PPF but country B will consume inside its PPF. 
B)  country A will consume inside its PPF but country B will consume outside its PPF. 
C)  both countries will consume inside their own PPFs. 
D)  both countries will consume outside their own PPFs.

Question 7

According to the theory of comparative advantage, a country should specialize in producing a good that involves:

Accepted Answer

A)  more inputs than those in other countries. 
B)  fewer inputs than those in other countries. 
C)  a higher opportunity cost than that of other countries. 
D)  a lower opportunity cost than that of other countries. 
A)  more inputs than those in other countries. 
B)  fewer inputs than those in other countries. 
C)  a higher opportunity cost than that of other countries. 
D)  a lower opportunity cost than that of other countries.

Question 8

According to the theory of comparative advantage:

Accepted Answer

A)  every country can produce some good with a lower opportunity cost. 
B)  every country should produce goods that involve high opportunity costs. 
C)  some countries have a comparative advantage in producing every good. 
D)  some countries should import every good from other countries. 
A)  every country can produce some good with a lower opportunity cost. 
B)  every country should produce goods that involve high opportunity costs. 
C)  some countries have a comparative advantage in producing every good. 
D)  some countries should import every good from other countries.

Question 9

The benefits of economies of scale and increased competition to an economy include lower unit costs.

Accepted Answer

A) True 
 B)False

Question 10

When determining what a country should specialize in producing, economists chiefly consider:

Accepted Answer

A)  absolute advantage. 
B)  comparative advantage. 
C)  incentives. 
D)  the dispersion of knowledge. 
A)  absolute advantage. 
B)  comparative advantage. 
C)  incentives. 
D)  the dispersion of knowledge.

Question 11

Economies can grow due to:

Accepted Answer

A)  the extent to which all individuals are educated in all areas of production. 
B)  government policies. 
C)  the extent to which markets facilitate specialization through trade. 
D)  barriers to trade that promote the growth of domestic markets. 
A)  the extent to which all individuals are educated in all areas of production. 
B)  government policies. 
C)  the extent to which markets facilitate specialization through trade. 
D)  barriers to trade that promote the growth of domestic markets.

Question 12

If you have a comparative advantage in washing dishes, then you also have an absolute advantage in washing dishes.

Accepted Answer

A) True 
 B)False

Question 13

According to Adam Smith:

Accepted Answer

A)  trade is a way for rich people to exploit poor people. 
B)  trade within a nation benefits people but international trade does not. 
C)  trade does not benefit anyone. 
D)  people buy goods for which they have higher opportunity costs than others. 
A)  trade is a way for rich people to exploit poor people. 
B)  trade within a nation benefits people but international trade does not. 
C)  trade does not benefit anyone. 
D)  people buy goods for which they have higher opportunity costs than others.

Question 14

Trade makes rich people richer and poor people poorer.

Accepted Answer

A) True 
 B)False

Question 15

Use the following to answer questions:
Figure: Coffee and Tea  
-(Figure: Coffee and Tea) Refer to the figure. Despite its widespread popularity today, coffee wasn't consumed as a beverage until the mid-1400s. Tea was the beverage of choice, particularly in Southeast Asia. Before coffee, what was the total tea production? (Assume the only reason to grow coffee was for beverage purposes.)

Accepted Answer

A)  80,000,000 
B)  130,000,000 
C)  140,000,000 
D)  160,000,000 
A)  80,000,000 
B)  130,000,000 
C)  140,000,000 
D)  160,000,000

Question 16

An advantage to specialization is that it can decrease the average cost of production by concentrating on smaller-scale production.

Accepted Answer

A) True 
 B)False

Question 17

If a country has an absolute advantage in both items produced when compared to another country, there can never be any benefit for them to trade.

Accepted Answer

A) True 
 B)False

Question 18

Trade creates value by moving goods from people that value them less to people that value them more.

Accepted Answer

A) True 
 B)False

Question 19

The production possibilities frontier shows all the combinations of goods that a country can produce given its productivity and supply of inputs.

Accepted Answer

A) True 
 B)False

Question 20

In the Star Trek: Deep Space Nine episode "Treachery, Faith, and the Great River," one of the characters is attempting to repair a spaceship. This is a critical job since there's a war going on, but the war is making it difficult to get the needed parts. An alien named Nog explains how he could obtain them by navigating the Great Material Continuum. He explains:
It binds the universe together . . . there are millions upon millions of worlds in the universe, each one filled with too much of one thing and not enough of another. And the Great Continuum flows through them all, like a mighty river, from "have" to "want" and back again. And if we navigate the Continuum with skill and grace, our ship will be filled with everything our hearts desire.
Identify which of the major themes of trade this passage about the Great Material Continuum highlights and explain how it works.

Accepted Answer

Trade makes people better off

Exam 2: The Power of Trade and Comparative

Which of the following best characterizes the relationship between the parties to a trade and the gains from trade?

Use the following to answer questions: Figure: Steel and Lumber -(Figure: Steel and Lumber) In the PPF diagram, China has a comparative advantage in ________ and an absolute advantage in _______.

International trade is based on the theory of absolute advantage.

Adam Smith advocated the benefits of:

Increased communication speed played a significant role in recent developments that led to increased trade and globalization?

Use the following to answer questions: Figure: Computers and Books -(Figure: Computers and Books) According to the figure, if country A produces only the good for which it has a comparative advantage and then consumes the other good by exchanging computers for books, then:

According to the theory of comparative advantage, a country should specialize in producing a good that involves:

According to the theory of comparative advantage:

The benefits of economies of scale and increased competition to an economy include lower unit costs.

When determining what a country should specialize in producing, economists chiefly consider:

Economies can grow due to:

If you have a comparative advantage in washing dishes, then you also have an absolute advantage in washing dishes.

According to Adam Smith:

Trade makes rich people richer and poor people poorer.

An advantage to specialization is that it can decrease the average cost of production by concentrating on smaller-scale production.

If a country has an absolute advantage in both items produced when compared to another country, there can never be any benefit for them to trade.

Trade creates value by moving goods from people that value them less to people that value them more.

The production possibilities frontier shows all the combinations of goods that a country can produce given its productivity and supply of inputs.

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

Use the following to answer questions: Figure: Steel and Lumber -(Figure: Steel and Lumber) In the PPF diagram, China has a comparative advantage in __ and an absolute advantage in _.