Question 1

The real cost of producing a good is:

Accepted Answer

A)  the dollar cost of inputs used to make the item. 
B)  the opportunity cost of producing the good. 
C)  the resources that were used to make the good. 
D)  the dollar amount it costs to sell the good. 
A)  the dollar cost of inputs used to make the item. 
B)  the opportunity cost of producing the good. 
C)  the resources that were used to make the good. 
D)  the dollar amount it costs to sell the good.

Question 2

Why do people specialize?

Accepted Answer

A)  Specialization increases productivity. 
B)  Specialization decreases people's dependence on one another. 
C)  People become self-sufficient when they specialize. 
D)  Most people only know how to do a few tasks. 
A)  Specialization increases productivity. 
B)  Specialization decreases people's dependence on one another. 
C)  People become self-sufficient when they specialize. 
D)  Most people only know how to do a few tasks.

Question 3

Figure: Drums and Shoes   Given the graph of the production possibilities frontier in the figure, which of the following statements is TRUE?

Accepted Answer

A)  The country has 2 units of labor, and it takes 0.5 units of labor to produce 1 unit of either good. 
B)  The country has 3 units of labor, and it takes 1 unit of labor to produce 3 drums and 1 unit of labor to produce 3 1/3 pairs of shoes. 
C)  The country has 4 units of labor, and it takes 2 units of labor to produce 8 drums and 3 units of labor to produce 3 shoes. 
D)  The country has 5 units of labor, and it takes 1 unit of labor to produce 1.8 drums and 1 unit of labor to produce 2.5 shoes. 
A)  The country has 2 units of labor, and it takes 0.5 units of labor to produce 1 unit of either good. 
B)  The country has 3 units of labor, and it takes 1 unit of labor to produce 3 drums and 1 unit of labor to produce 3 1/3 pairs of shoes. 
C)  The country has 4 units of labor, and it takes 2 units of labor to produce 8 drums and 3 units of labor to produce 3 shoes. 
D)  The country has 5 units of labor, and it takes 1 unit of labor to produce 1.8 drums and 1 unit of labor to produce 2.5 shoes.

Question 4

Specialization and trade can _____ the per-unit cost of production because _____ .

Accepted Answer

A)  decrease; it allows for more small-scale production. 
B)  decrease; it creates economies of scale associated with large-scale production 
C)  increase; it requires more expensive, specialized equipment 
D)  increase; more expensive labor is needed. 
A)  decrease; it allows for more small-scale production. 
B)  decrease; it creates economies of scale associated with large-scale production 
C)  increase; it requires more expensive, specialized equipment 
D)  increase; more expensive labor is needed.

Question 5

Use the following to answer questions:
Figure: Sofas and Windows  
-(Figure: Sofas and Windows) In the PPF diagram, what is the opportunity cost of producing an additional window?

Accepted Answer

A)  1 1/4 sofas 
B)  4/5 of a window 
C)  1 window 
D)  4/5 of a sofa 
A)  1 1/4 sofas 
B)  4/5 of a window 
C)  1 window 
D)  4/5 of a sofa

Question 6

Martha Stewart can iron 20 shirts per hour. Her housekeeper can iron 12 shirts per hour. From this information alone, we can infer that:

Accepted Answer

A)  Martha has a comparative advantage in ironing. 
B)  the housekeeper has a comparative advantage in ironing. 
C)  Martha has an absolute advantage in ironing. 
D)  the housekeeper has an absolute advantage in ironing. 
A)  Martha has a comparative advantage in ironing. 
B)  the housekeeper has a comparative advantage in ironing. 
C)  Martha has an absolute advantage in ironing. 
D)  the housekeeper has an absolute advantage in ironing.

Question 7

Suppose a famous baseball player, Alex Rodriguez, hires a high school student to paint his house. Which of the following is most likely TRUE?

Accepted Answer

A)  The opportunity cost of painting a house is higher for Alex Rodriguez than for the high school student. 
B)  The opportunity cost of painting a house is lower for Alex Rodriguez than for the high school student. 
C)  The opportunity cost of painting a house is the same for Alex Rodriguez as for the high school student. 
D)  The opportunity cost of painting a house is zero for Alex Rodriguez and is negative for the high school student. 
A)  The opportunity cost of painting a house is higher for Alex Rodriguez than for the high school student. 
B)  The opportunity cost of painting a house is lower for Alex Rodriguez than for the high school student. 
C)  The opportunity cost of painting a house is the same for Alex Rodriguez as for the high school student. 
D)  The opportunity cost of painting a house is zero for Alex Rodriguez and is negative for the high school student.

Question 8

Use the following to answer questions:
Figure: PPF Mexico & United States  
-(Figure: PPF Mexico & United States) Use the figure in which both Mexico and the United States each have 24 units of labor. The opportunity costs of producing one shirt are:

Accepted Answer

A)  one computer for Mexico and 1/6 of a computer for the United States. 
B)  1/6 of a computer for Mexico and one computer for United States. 
C)  one computer for both Mexico and the United States. 
D)  1/6 of computer for both Mexico and the United States. 
A)  one computer for Mexico and 1/6 of a computer for the United States. 
B)  1/6 of a computer for Mexico and one computer for United States. 
C)  one computer for both Mexico and the United States. 
D)  1/6 of computer for both Mexico and the United States.

Question 9

In the time it takes Stanley to clean the bathroom he can make three cheesecakes. In the time it takes Fran to clean the bathroom she can make two cheesecakes. Fran has a comparative advantage in cleaning the bathroom.

Accepted Answer

A) True 
 B)False

Question 10

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 Viking hat (i.e., going from a production level of nine Viking hats to a production level of 10 Viking hats)?

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

Question 11

Which of the following best explains the term "specialization" with respect to trade?

Accepted Answer

A)  Specialization occurs when a people concentrate their productive resources on the goods and services they can produce most efficiently. 
B)  Specialization occurs when one person can produce more of a particular good than another person. 
C)  Specialization refers to the absolute advantage that a person enjoys in the production of goods and services. 
D)  Specialization refers to the ability of a person to produce more of a good than his or her trading partners. 
A)  Specialization occurs when a people concentrate their productive resources on the goods and services they can produce most efficiently. 
B)  Specialization occurs when one person can produce more of a particular good than another person. 
C)  Specialization refers to the absolute advantage that a person enjoys in the production of goods and services. 
D)  Specialization refers to the ability of a person to produce more of a good than his or her trading partners.

Question 12

If instead of specialized doctors (neurologists, cardiologists, gastroenterologists, etc.) we had doctors who each knew the same things about all aspects of medicine, it would be:

Accepted Answer

A)  better because then we could just go to one doctor with no loss of quality in medical care. 
B)  better because total medical knowledge in society would increase. 
C)  worse because the human brain is limited. 
D)  worse because total medical knowledge in society would decrease. 
A)  better because then we could just go to one doctor with no loss of quality in medical care. 
B)  better because total medical knowledge in society would increase. 
C)  worse because the human brain is limited. 
D)  worse because total medical knowledge in society would decrease.

Question 13

Use the following to answer questions:
Figure: PPF Goods X & Y  
-Suppose a country without any international trade opens its borders to international trade. After specialization how will its location on its production possibility frontier change?

Accepted Answer

A)  The country moves from inside the PPF to on the PPF. 
B)  The country moves from on the PPF to beyond the PPF. 
C)  The country moves along the PPF toward its comparative advantage. 
D)  The country moves along the PPF away from its comparative advantage. 
A)  The country moves from inside the PPF to on the PPF. 
B)  The country moves from on the PPF to beyond the PPF. 
C)  The country moves along the PPF toward its comparative advantage. 
D)  The country moves along the PPF away from its comparative advantage.

Question 14

Producers who have absolute advantages in all goods:

Accepted Answer

A)  cannot exist. 
B)  have no use for trade. 
C)  are better off specializing in their comparative advantages and trading for other goods. 
D)  should avoid the global division of labor because it is counterproductive for them. 
A)  cannot exist. 
B)  have no use for trade. 
C)  are better off specializing in their comparative advantages and trading for other goods. 
D)  should avoid the global division of labor because it is counterproductive for them.

Question 15

Use the following to answer questions:
Figure: Countries A and B  
-(Figure: Countries A and B) Refer to the figure regarding countries A and B. Assume that each country begins by allocating half its labor force to the production of each good. Through trade with each other, each country could increase its consumption of both goods if Country A moved part of its labor force to the production of Good _____ and Country B moved part of its labor force to the production of Good _____.

Accepted Answer

A)  X; X 
B)  X; Y 
C)  Y; Y 
D)  Y; X 
A)  X; X 
B)  X; Y 
C)  Y; Y 
D)  Y; X

Question 16

The slope of the production possibilities frontier at a given point indicates ______.

Accepted Answer

A)  the preferences of a country. 
B)  a country's total gains from trade. 
C)  a country's opportunity cost of production. 
D)  a country's trade balance. 
A)  the preferences of a country. 
B)  a country's total gains from trade. 
C)  a country's opportunity cost of production. 
D)  a country's trade balance.

Question 17

Mark values his drum set at $800 and Ella values her guitar at $1,000. Suppose that Mark trades his drum set for Ella's guitar.

Accepted Answer

A)  This trade makes Ella worse off by $200. 
B)  This trade makes Mark better off by $200. 
C)  Mark must value Ella's guitar for at least $800, and Ella must value Mark's drum set for at least $1,000. 
D)  This trade decreases total value by moving the guitar and drum away from people who placed a high value on them. 
A)  This trade makes Ella worse off by $200. 
B)  This trade makes Mark better off by $200. 
C)  Mark must value Ella's guitar for at least $800, and Ella must value Mark's drum set for at least $1,000. 
D)  This trade decreases total value by moving the guitar and drum away from people who placed a high value on them.

Question 18

In 2010, Switzerland-based Nestlé began sailing supermarket barges up and down parts of the Amazon River. The barges carry approximately 300 different goods and cater to about a dozen local communities that fish the Amazon's bountiful rivers and whose members lack the time and money to visit a conventional store. Which advantage from trade is illustrated in this passage?

Accepted Answer

A)  differences in preferences 
B)  specialization 
C)  comparative advantage 
D)  Each of these advantages is illustrated in the passage. 
A)  differences in preferences 
B)  specialization 
C)  comparative advantage 
D)  Each of these advantages is illustrated in the passage.

Question 19

The theory of comparative advantage is:

Accepted Answer

A)  rarely relevant for identifying whether gains from trade can be obtained. 
B)  always relevant for identifying whether gains from trade can be obtained. 
C)  not true for nations, though it may be true for individuals. 
D)  true for nations, but it is not true for business or individuals. 
A)  rarely relevant for identifying whether gains from trade can be obtained. 
B)  always relevant for identifying whether gains from trade can be obtained. 
C)  not true for nations, though it may be true for individuals. 
D)  true for nations, but it is not true for business or individuals.

Question 20

Trade tends to:

Accepted Answer

A)  decrease the wages of high-productivity countries. 
B)  decrease the wages of low-productivity countries. 
C)  decrease the wages of both high- and low-productivity countries. 
D)  increase the wages of both high- and low-productivity countries. 
A)  decrease the wages of high-productivity countries. 
B)  decrease the wages of low-productivity countries. 
C)  decrease the wages of both high- and low-productivity countries. 
D)  increase the wages of both high- and low-productivity countries.

Exam 2: The Power of Trade and Comparative

The real cost of producing a good is:

Why do people specialize?

Figure: Drums and Shoes Given the graph of the production possibilities frontier in the figure, which of the following statements is TRUE?

Specialization and trade can _____ the per-unit cost of production because _____ .

Use the following to answer questions: Figure: Sofas and Windows -(Figure: Sofas and Windows) In the PPF diagram, what is the opportunity cost of producing an additional window?

Martha Stewart can iron 20 shirts per hour. Her housekeeper can iron 12 shirts per hour. From this information alone, we can infer that:

Suppose a famous baseball player, Alex Rodriguez, hires a high school student to paint his house. Which of the following is most likely TRUE?

Use the following to answer questions: Figure: PPF Mexico & United States -(Figure: PPF Mexico & United States) Use the figure in which both Mexico and the United States each have 24 units of labor. The opportunity costs of producing one shirt are:

In the time it takes Stanley to clean the bathroom he can make three cheesecakes. In the time it takes Fran to clean the bathroom she can make two cheesecakes. Fran has a comparative advantage in cleaning the bathroom.

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 Viking hat (i.e., going from a production level of nine Viking hats to a production level of 10 Viking hats)?

Which of the following best explains the term "specialization" with respect to trade?

If instead of specialized doctors (neurologists, cardiologists, gastroenterologists, etc.) we had doctors who each knew the same things about all aspects of medicine, it would be:

Use the following to answer questions: Figure: PPF Goods X & Y -Suppose a country without any international trade opens its borders to international trade. After specialization how will its location on its production possibility frontier change?

Producers who have absolute advantages in all goods:

The slope of the production possibilities frontier at a given point indicates ______.

Mark values his drum set at $800 and Ella values her guitar at $1,000. Suppose that Mark trades his drum set for Ella's guitar.

The theory of comparative advantage is:

Trade tends to:

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

Specialization and trade can _ the per-unit cost of production because _ .