Question 1

According to the theory of comparative advantage, the reason wages are lower in China than in the United States is:

Accepted Answer

A)  the higher cost of living in the United States. 
B)  lower productivity in China. 
C)  the lower opportunity cost to work in China. 
D)  more trade restrictions in the United States. 
A)  the higher cost of living in the United States. 
B)  lower productivity in China. 
C)  the lower opportunity cost to work in China. 
D)  more trade restrictions in the United States.

Question 2

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 3

Which of the following is least likely a consequence of the division of knowledge?

Accepted Answer

A)  The development of the computer tablet. 
B)  A totally self-sufficient family farm. 
C)  A new delivery method for cancer-fighting drugs. 
D)  The provision of a new bike path in your community. 
A)  The development of the computer tablet. 
B)  A totally self-sufficient family farm. 
C)  A new delivery method for cancer-fighting drugs. 
D)  The provision of a new bike path in your community.

Question 4

Use the following to answer questions: Table: Production Possibilities for the United States and Mexico $$\begin{array} { l c c } 
\hline & \text { Corn (millions of tons) } & \text { Potatoes (millions of tons) } \
\hline \text { United States } & 50 & 10 \
\text { Mexico } & 40 & 5 \
\hline
\end{array}$$
-(Table: Production Possibilities for the United States and Mexico) According to the table on production possibilities for the United States and Mexico, Mexico's opportunity cost of producing each ton of potatoes is ______, while the United States' opportunity cost of producing each ton of potatoes is ______.

Accepted Answer

A)  0.125 tons of potatoes; 0.2 tons of potatoes 
B)  eight tons of corn; 0.2 tons of potatoes 
C)  eight tons of corn; five tons of corn 
D)  five tons of corn; 0.2 tons of corn 
A)  0.125 tons of potatoes; 0.2 tons of potatoes 
B)  eight tons of corn; 0.2 tons of potatoes 
C)  eight tons of corn; five tons of corn 
D)  five tons of corn; 0.2 tons of corn

Question 5

In Spain it takes 10 workers to produce one barrel of wine and four workers to produce one yard of cloth. Thus, the opportunity cost of producing one barrel of wine is 2.5 yards of cloth.

Accepted Answer

A) True 
 B)False

Question 6

In a world with trade, no one can afford to specialize.

Accepted Answer

A) True 
 B)False

Question 7

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. Andy'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 8

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 oil?

Accepted Answer

A)  Texas, because it can produce more oil than anyone else 
B)  New York, because its opportunity cost for a barrel of oil is 4 movies per year 
C)  Texas, because its opportunity cost for a barrel of oil is 1.5 movies per year 
D)  California, because its opportunity cost for a barrel of oil is 2 movies per year 
A)  Texas, because it can produce more oil than anyone else 
B)  New York, because its opportunity cost for a barrel of oil is 4 movies per year 
C)  Texas, because its opportunity cost for a barrel of oil is 1.5 movies per year 
D)  California, because its opportunity cost for a barrel of oil is 2 movies per year

Question 9

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 an absolute 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 10

If labor in China is less productive than labor in the United States in all areas of production, then:

Accepted Answer

A)  both the United States and China can benefit from trade. 
B)  neither nation can benefit from trade. 
C)  China can benefit from trade but not the United States. 
D)  the United States can benefit from trade but not China 
A)  both the United States and China can benefit from trade. 
B)  neither nation can benefit from trade. 
C)  China can benefit from trade but not the United States. 
D)  the United States can benefit from trade but not China

Question 11

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 unit of fish ?

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 12

Use the following to answer questions: Table: Production Possibilities for the United States and Mexico $$\begin{array} { l c c } 
\hline & \text { Corn (millions of tons) } & \text { Potatoes (millions of tons) } \
\hline \text { United States } & 50 & 10 \
\text { Mexico } & 40 & 5 \
\hline
\end{array}$$
-(Table: Production Possibilities for the United States and Mexico) According to the table on production possibilities for the United States and Mexico, Mexico has an absolute advantage in ________ and a comparative advantage in _________.

Accepted Answer

A)  neither good; corn 
B)  corn; potatoes 
C)  potatoes; corn 
D)  neither good; potatoes 
A)  neither good; corn 
B)  corn; potatoes 
C)  potatoes; corn 
D)  neither good; potatoes

Question 13

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 14

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

Accepted Answer

A)  both goods; both goods 
B)  steel; lumber 
C)  steel; both goods 
D)  lumber; steel 
A)  both goods; both goods 
B)  steel; lumber 
C)  steel; both goods 
D)  lumber; steel

Question 15

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 16

Use the following to answer questions: Table: iPhone and iPod Production $$\begin{array} { l c c } 
\hline & \text { One iPhone } & \text { One iPod } \
\hline \text { Canadian labor units } & 3 & 4 \
\text { United States labor units } & 2 & 2 \
\hline
\end{array}$$
-(Table: iPhone and iPod Production) According to the table on iPhone and iPod production, which of the following is TRUE?

Accepted Answer

A)  Canada has an absolute advantage in producing both iPhones and iPods. 
B)  The United States has an absolute advantage in producing both iPhones and iPods. 
C)  Canada has an absolute advantage in producing iPhones, and the United States has an absolute advantage in producing iPods. 
D)  The United States has an absolute advantage in producing iPhones, and Canada has an absolute advantage in producing iPods. 
A)  Canada has an absolute advantage in producing both iPhones and iPods. 
B)  The United States has an absolute advantage in producing both iPhones and iPods. 
C)  Canada has an absolute advantage in producing iPhones, and the United States has an absolute advantage in producing iPods. 
D)  The United States has an absolute advantage in producing iPhones, and Canada has an absolute advantage in producing iPods.

Question 17

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 18

Use the following to answer questions: Table: iPhone and iPod Production $$\begin{array} { l c c } 
\hline & \text { One iPhone } & \text { One iPod } \
\hline \text { Canadian labor units } & 3 & 4 \
\text { United States labor units } & 2 & 2 \
\hline
\end{array}$$
-(Table: iPhone and iPod Production) According to the table on iPhone and iPod production, the opportunity cost of producing one iPhone is:

Accepted Answer

A)  4/3 of one iPod for Canada, and two iPods for the United States. 
B)  two iPods for Canada, and four iPods for the United States. 
C)  3/4 of one iPod for Canada, and one iPod for the United States. 
D)  one iPod for Canada, and 3/4 of one iPod for the United States. 
A)  4/3 of one iPod for Canada, and two iPods for the United States. 
B)  two iPods for Canada, and four iPods for the United States. 
C)  3/4 of one iPod for Canada, and one iPod for the United States. 
D)  one iPod for Canada, and 3/4 of one iPod for the United States.

Question 19

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 20

Use the following to answer questions: Figure: PPF Nickel & Textiles  
-(Figure: PPF Nickel & Textiles) Refer to the figure. What is the maximum amount of nickel China can produce?

Accepted Answer

A)  10 tons 
B)  8 tons 
C)  6 tons 
D)  4 tons 
A)  10 tons 
B)  8 tons 
C)  6 tons 
D)  4 tons

According to the theory of comparative advantage, the reason wages are lower in China than in the United States is:

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.

Which of the following is least likely a consequence of the division of knowledge?

In Spain it takes 10 workers to produce one barrel of wine and four workers to produce one yard of cloth. Thus, the opportunity cost of producing one barrel of wine is 2.5 yards of cloth.

In a world with trade, no one can afford to specialize.

Use the following to answer questions: Table: Movies and Oil Hypothetical maximum production in various U.S. states Movies/Year Barrels of Oil/Year (millions) Texas 75 50 California 60 30 New York 20 5 -(Table: Movies and Oil) According to the table, which state has the comparative advantage in oil?

If labor in China is less productive than labor in the United States in all areas of production, then:

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 unit of fish ?

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

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

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

Use the following to answer questions: Table: iPhone and iPod Production One iPhone One iPod Canadian labor units 3 4 United States labor units 2 2 -(Table: iPhone and iPod Production) According to the table on iPhone and iPod production, which of the following is TRUE?

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.)

Use the following to answer questions: Table: iPhone and iPod Production One iPhone One iPod Canadian labor units 3 4 United States labor units 2 2 -(Table: iPhone and iPod Production) According to the table on iPhone and iPod production, the opportunity cost of producing one iPhone is:

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

Use the following to answer questions: Figure: PPF Nickel & Textiles -(Figure: PPF Nickel & Textiles) Refer to the figure. What is the maximum amount of nickel China can produce?

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

According to the theory of comparative advantage, the reason wages are lower in China than in the United States is:

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.

Which of the following is least likely a consequence of the division of knowledge?

In Spain it takes 10 workers to produce one barrel of wine and four workers to produce one yard of cloth. Thus, the opportunity cost of producing one barrel of wine is 2.5 yards of cloth.

In a world with trade, no one can afford to specialize.

If labor in China is less productive than labor in the United States in all areas of production, then:

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 unit of fish ?

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

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

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

Use the following to answer questions: Table: iPhone and iPod Production One iPhone One iPod Canadian labor units 3 4 United States labor units 2 2 -(Table: iPhone and iPod Production) According to the table on iPhone and iPod production, which of the following is TRUE?

Use the following to answer questions: Table: iPhone and iPod Production One iPhone One iPod Canadian labor units 3 4 United States labor units 2 2 -(Table: iPhone and iPod Production) According to the table on iPhone and iPod production, the opportunity cost of producing one iPhone is:

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

Use the following to answer questions: Figure: PPF Nickel & Textiles -(Figure: PPF Nickel & Textiles) Refer to the figure. What is the maximum amount of nickel China can produce?

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

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