Question 1

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 2

Utilizing comparative advantage can best be exemplified as:

Accepted Answer

A)  your lawyer word-processing her own legal briefs. 
B)  the CEO of Microsoft programming his own computer. 
C)  the president of your university teaching a class again. 
D)  a world-renowned chef hiring someone to cook meals for his family. 
A)  your lawyer word-processing her own legal briefs. 
B)  the CEO of Microsoft programming his own computer. 
C)  the president of your university teaching a class again. 
D)  a world-renowned chef hiring someone to cook meals for his family.

Question 3

When economists say that an individual or country has the comparative advantage in the production of a good, it means that they:

Accepted Answer

A)  can produce more of the good than anyone else. 
B)  are the lowest-opportunity-cost producer of the good. 
C)  are the highest-opportunity-cost producer of the good. 
D)  are operating on their production possibilities frontier. 
A)  can produce more of the good than anyone else. 
B)  are the lowest-opportunity-cost producer of the good. 
C)  are the highest-opportunity-cost producer of the good. 
D)  are operating on their production possibilities frontier.

Question 4

The points on the production possibilities frontier show the cost of the different goods that a country can produce.

Accepted Answer

A) True 
 B)False

Question 5

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 6

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) Using the table on production possibilities for the United States and Mexico, assume each country specializes in the good for which it has a comparative advantage. Which of the following answers identifies a trade price that both countries would find acceptable? (Units are in tons.)

Accepted Answer

A)  0.2 potato for one corn < Trade price < five corns for one potato 
B)  0.125 potato for one corn,< Trade price < eight potatoes for one corn 
C)  five corns for one potato < Trade price < eight corns for one potato 
D)  0.125 potato for one corn < Trade price < five potatoes for one corn 
A)  0.2 potato for one corn < Trade price < five corns for one potato 
B)  0.125 potato for one corn,< Trade price < eight potatoes for one corn 
C)  five corns for one potato < Trade price < eight corns for one potato 
D)  0.125 potato for one corn < Trade price < five potatoes for one corn

Question 7

Poor countries are at a distinct disadvantage when it comes to economic production; they get outcompeted in everything since they do not have a comparative advantage in anything.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Use the following to answer questions: Figure: PPF Goods X & Y  
-(Figure: PPF Goods X & Y) Refer to the figure. Which of the points representing various consumption possibilities for the country portrayed above is only attainable through foreign trade?

Accepted Answer

A)  Point A 
B)  Point B 
C)  Point C 
D)  Both points C and B 
A)  Point A 
B)  Point B 
C)  Point C 
D)  Both points C and B

Question 10

One of the ways trade increases wealth is by taking advantage of differences in preferences.

Accepted Answer

A) True 
 B)False

Question 11

The main reason why specialization can raise productivity is that:

Accepted Answer

A)  knowledge in human brains is limited. 
B)  some persons have more knowledge than others. 
C)  it is always good to know less than more. 
D)  it is impossible to learn anything well. 
A)  knowledge in human brains is limited. 
B)  some persons have more knowledge than others. 
C)  it is always good to know less than more. 
D)  it is impossible to learn anything well.

Question 12

The enormous variety of goods and services that we consume each day can be attributed mainly to:

Accepted Answer

A)  government regulations. 
B)  home production. 
C)  specialization and trade. 
D)  early craftsmen handing down their knowledge. 
A)  government regulations. 
B)  home production. 
C)  specialization and trade. 
D)  early craftsmen handing down their knowledge.

Question 13

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 14

Figure: Cars and Boats   Refer to the figure. A country needs 4 units of labor to produce one car and 3 units of labor to produce one boat, and the country has 120 units of labor. Which of the figures represents this country's PPF?

Accepted Answer

A)  Figure A 
B)  Figure B 
C)  Figure C 
D)  Figure D 
A)  Figure A 
B)  Figure B 
C)  Figure C 
D)  Figure D

Question 15

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 16

Which of the following situations would lead to more starvation?

Accepted Answer

A)  a world where everyone grows his or her own food and there is no trade 
B)  a world with trade and lots of specialization 
C)  a world with immense division of knowledge 
D)  a world where only some people specialize in food and everyone else produces something else 
A)  a world where everyone grows his or her own food and there is no trade 
B)  a world with trade and lots of specialization 
C)  a world with immense division of knowledge 
D)  a world where only some people specialize in food and everyone else produces something else

Question 17

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 18

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 19

Two persons each produce two identical goods. Which of the following is true about their absolute and comparative advantages in the production of these two goods?

Accepted Answer

A)  One person can have an absolute advantage in both goods but not a comparative advantage in both goods. 
B)  One person can have a comparative advantage in both goods but not an absolute advantage in both goods. 
C)  One person can have neither an absolute nor a comparative advantage in either good. 
D)  Both persons can always have both an absolute and comparative advantage in both goods. 
A)  One person can have an absolute advantage in both goods but not a comparative advantage in both goods. 
B)  One person can have a comparative advantage in both goods but not an absolute advantage in both goods. 
C)  One person can have neither an absolute nor a comparative advantage in either good. 
D)  Both persons can always have both an absolute and comparative advantage in both goods.

Question 20

Globalization is the advance of human cooperation across national boundaries.

Accepted Answer

A) True 
 B)False

Exam 2: The Power of Trade and Comparative

Producers who have absolute advantages in all goods:

Utilizing comparative advantage can best be exemplified as:

When economists say that an individual or country has the comparative advantage in the production of a good, it means that they:

The points on the production possibilities frontier show the cost of the different goods that a country can produce.

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

Poor countries are at a distinct disadvantage when it comes to economic production; they get outcompeted in everything since they do not have a comparative advantage in anything.

The trade networks of the Roman Empire:

Use the following to answer questions: Figure: PPF Goods X & Y -(Figure: PPF Goods X & Y) Refer to the figure. Which of the points representing various consumption possibilities for the country portrayed above is only attainable through foreign trade?

One of the ways trade increases wealth is by taking advantage of differences in preferences.

The main reason why specialization can raise productivity is that:

The enormous variety of goods and services that we consume each day can be attributed mainly to:

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 _______.

Figure: Cars and Boats Refer to the figure. A country needs 4 units of labor to produce one car and 3 units of labor to produce one boat, and the country has 120 units of labor. Which of the figures represents this country's PPF?

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

Which of the following situations would lead to more starvation?

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

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.

Two persons each produce two identical goods. Which of the following is true about their absolute and comparative advantages in the production of these two goods?

Globalization is the advance of human cooperation across national boundaries.

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.

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 _.