Question 1

On a production possibilities frontier a trade-off can be illustrated as:

Accepted Answer

A)  an outward shift. 
B)  an inward shift. 
C)  a movement from a point inside the frontier to one on the frontier. 
D)  a movement along the frontier itself. 
A)  an outward shift. 
B)  an inward shift. 
C)  a movement from a point inside the frontier to one on the frontier. 
D)  a movement along the frontier itself. D

Question 2

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

Accepted Answer

A) True 
 B)False  True

Question 3

Use the following to answer questions: Figure: Computers and Books  
-(Figure: Computers and Books) According to the figure, both countries can increase consumption if:

Accepted Answer

A)  both countries buy computers and books from each other. 
B)  both countries produce both computers and books. 
C)  country A produces only computers and buys books from country B. 
D)  country A produces only books and buys computers from country B. 
A)  both countries buy computers and books from each other. 
B)  both countries produce both computers and books. 
C)  country A produces only computers and buys books from country B. 
D)  country A produces only books and buys computers from country B. C

Question 4

Use the following to answer questions: Table: Movies and Oil $$\begin{array}{l}
\text { Hypothetical maximum production in various U.S. states }\
\begin{array} { l c c } 
\hline & \text { Movies/Year } & \text { Barrels of Oil/Year (millions) } \
\hline \text { Texas } & 75 & 50 \
\text { California } & 60 & 30 \
\text { New York } & 20 & 5 \
\hline
\end{array}
\end{array}$$
-(Table: Movies and Oil) According to the table, which state has the comparative advantage in movies?

Accepted Answer

A)  Texas, because it can produce more movies than anyone else 
B)  New York 
C)  California 
D)  It is impossible to tell from the information in the table. 
A)  Texas, because it can produce more movies than anyone else 
B)  New York 
C)  California 
D)  It is impossible to tell from the information in the table.

Question 5

Without trade, the knowledge used by an entire economy would be about the same as the knowledge had by:

Accepted Answer

A)  all intelligent people combined. 
B)  a large number of people. 
C)  one person. 
D)  no one. 
A)  all intelligent people combined. 
B)  a large number of people. 
C)  one person. 
D)  no one.

Question 6

Which of the following explains why someone with an absolute advantage in painting houses may NOT spend their time painting houses?

Accepted Answer

A)  They may have a comparative advantage in painting houses, as well. 
B)  Even though they have the absolute advantage in painting houses, they still may not be very good at it. 
C)  In an efficient market, someone with an absolute advantage in painting houses will always spend their time painting houses. 
D)  They may be relatively better at something else than painting houses. 
A)  They may have a comparative advantage in painting houses, as well. 
B)  Even though they have the absolute advantage in painting houses, they still may not be very good at it. 
C)  In an efficient market, someone with an absolute advantage in painting houses will always spend their time painting houses. 
D)  They may be relatively better at something else than painting houses.

Question 7

The principles of comparative advantage, specialization, and trade apply to:
I. individuals.
II. communities.
III. regions.
IV. nations.

Accepted Answer

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

Question 8

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 9

Use the following to answer questions: Table: Production Possibilities for Kenya and Sri Lanka $$\begin{array} { l c c } 
\hline & \text { Beans (millions of tons) } & \text { Tea (millions of tons) } \
\hline \text { Kenya } & 100 & 200 \
\text { Sri Lanka } & 150 & 450 \
\hline
\end{array}$$
-(Table: Production Possibilities for Kenya and Sri Lanka) According to the table on production possibilities for Kenya and Sri Lanka, which of the following answers identifies a trade price that both countries would find acceptable? (Units are in tons.)

Accepted Answer

A)  0.5 bean for one tea < Trade price < two teas for one bean 
B)  0.5 bean for one tea < Trade price < three beans for one tea 
C)  two teas for one bean < Trade price < three teas for one bean 
D)  0.3 bean for one tea < Trade price < two beans for one tea 
A)  0.5 bean for one tea < Trade price < two teas for one bean 
B)  0.5 bean for one tea < Trade price < three beans for one tea 
C)  two teas for one bean < Trade price < three teas for one bean 
D)  0.3 bean for one tea < Trade price < two beans for one tea

Question 10

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 11

The concept of comparative advantage implies that:

Accepted Answer

A)  there are winners and losers when people trade without specializing. 
B)  people have to be self-sufficient. 
C)  people benefit from specializing and trading with one another. 
D)  only those people who are productive benefit from trade. 
A)  there are winners and losers when people trade without specializing. 
B)  people have to be self-sufficient. 
C)  people benefit from specializing and trading with one another. 
D)  only those people who are productive benefit from trade.

Question 12

Use the following to answer questions: Figure: PPF Nickel & Textiles  
-(Figure: PPF Nickel & Textiles) Refer to the figure. How many tons of textiles does Australia give up to produce one ton of nickel?

Accepted Answer

A)  1/3 
B)  1/2 
C)  2 
D)  3 
A)  1/3 
B)  1/2 
C)  2 
D)  3

Question 13

The relationship between trade and specialization is best characterized as follows:

Accepted Answer

A)  Trade decreases specialization, which in turn increases the demand for trade. 
B)  Trade decreases specialization, which in turn decreases the demand for trade. 
C)  Trade increases specialization, which in turn increases the demand for trade. 
D)  Trade increases specialization, which in turn decreases the demand for trade. 
A)  Trade decreases specialization, which in turn increases the demand for trade. 
B)  Trade decreases specialization, which in turn decreases the demand for trade. 
C)  Trade increases specialization, which in turn increases the demand for trade. 
D)  Trade increases specialization, which in turn decreases the demand for trade.

Question 14

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. If each party produces according to his comparative advantage:

Accepted Answer

A)  Andy will host and Conan will write. 
B)  Andy will host and Andy will write. 
C)  Conan will host and Conan will write. 
D)  Conan will host and Andy will write. 
A)  Andy will host and Conan will write. 
B)  Andy will host and Andy will write. 
C)  Conan will host and Conan will write. 
D)  Conan will host and Andy will write.

Question 15

Brazil and Canada trade two goods: bananas and ice pops. Brazil has a comparative advantage in banana production. From this, we know that:

Accepted Answer

A)  Brazil produces bananas at a lower explicit cost than does Canada. 
B)  Brazil produces ice pops at a lower explicit cost than does Canada. 
C)  Brazil produces bananas at a lower opportunity cost than does Canada. 
D)  Brazil produces ice pops at a lower opportunity cost than does Canada. 
A)  Brazil produces bananas at a lower explicit cost than does Canada. 
B)  Brazil produces ice pops at a lower explicit cost than does Canada. 
C)  Brazil produces bananas at a lower opportunity cost than does Canada. 
D)  Brazil produces ice pops at a lower opportunity cost than does Canada.

Question 16

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

a. The opportunity cost in Narnia is 0.

Question 17

Trading increases the amount a single country can produce.

Accepted Answer

A) True 
 B)False

Question 18

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 19

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 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.

Question 20

Both Maria and Jorge bake cookies and bread, but Maria spends less time baking each batch of cookies and each loaf of bread than Jorge does. Specialization and trade between them can benefit:

Accepted Answer

A)  both Maria and Jorge. 
B)  Maria, but not Jorge. 
C)  Jorge, but not Maria. 
D)  neither Maria nor Jorge. 
A)  both Maria and Jorge. 
B)  Maria, but not Jorge. 
C)  Jorge, but not Maria. 
D)  neither Maria nor Jorge.

On a production possibilities frontier a trade-off can be illustrated as:

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

Use the following to answer questions: Figure: Computers and Books -(Figure: Computers and Books) According to the figure, both countries can increase consumption if:

Without trade, the knowledge used by an entire economy would be about the same as the knowledge had by:

Which of the following explains why someone with an absolute advantage in painting houses may NOT spend their time painting houses?

The principles of comparative advantage, specialization, and trade apply to: I. individuals. II. communities. III. regions. IV. nations.

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.

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

The concept of comparative advantage implies that:

Use the following to answer questions: Figure: PPF Nickel & Textiles -(Figure: PPF Nickel & Textiles) Refer to the figure. How many tons of textiles does Australia give up to produce one ton of nickel?

The relationship between trade and specialization is best characterized as follows:

Brazil and Canada trade two goods: bananas and ice pops. Brazil has a comparative advantage in banana production. From this, we know that:

Trading increases the amount a single country can produce.

Producers who have absolute advantages in all goods:

Both Maria and Jorge bake cookies and bread, but Maria spends less time baking each batch of cookies and each loaf of bread than Jorge does. Specialization and trade between them can benefit:

The Big Ideas

Supply and Demand

Equilibrium: How Supply and Demand Determine Prices

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth, Capital Accumulation and the Economics of Ideas: Catching up Vs the Cutting Edge

Saving, Investment, and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations: Aggregate Demand and Supply

Transmission and Amplification Mechanisms

The Federal Reserve System and Open Market Operations

Monetary Policy

The Federal Budget: Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

Filters

Exam 2: The Power of Trade and Comparative Advantage

On a production possibilities frontier a trade-off can be illustrated as:

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

Use the following to answer questions: Figure: Computers and Books -(Figure: Computers and Books) According to the figure, both countries can increase consumption if:

Without trade, the knowledge used by an entire economy would be about the same as the knowledge had by:

Which of the following explains why someone with an absolute advantage in painting houses may NOT spend their time painting houses?

The principles of comparative advantage, specialization, and trade apply to: I. individuals. II. communities. III. regions. IV. nations.

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.

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

The concept of comparative advantage implies that:

Use the following to answer questions: Figure: PPF Nickel & Textiles -(Figure: PPF Nickel & Textiles) Refer to the figure. How many tons of textiles does Australia give up to produce one ton of nickel?

The relationship between trade and specialization is best characterized as follows:

Brazil and Canada trade two goods: bananas and ice pops. Brazil has a comparative advantage in banana production. From this, we know that:

Trading increases the amount a single country can produce.

Producers who have absolute advantages in all goods:

Both Maria and Jorge bake cookies and bread, but Maria spends less time baking each batch of cookies and each loaf of bread than Jorge does. Specialization and trade between them can benefit:

The Big Ideas

Supply and Demand

Equilibrium: How Supply and Demand Determine Prices

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth, Capital Accumulation and the Economics of Ideas: Catching up Vs the Cutting Edge

Saving, Investment, and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations: Aggregate Demand and Supply

Transmission and Amplification Mechanisms

The Federal Reserve System and Open Market Operations

Monetary Policy

The Federal Budget: Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

Filters