Question 1

If it was impossible to have a comparative advantage, there would be no gains from trade.

Accepted Answer

A) True 
 B)False

Question 2

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 3

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 4

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. If each country allocated half of its labor force to the production of each good before trade and were to then each specialize in their comparative advantage and allocate 75 percent of its labor force to the production of that good, world production of Good X would change by _____ and the production of Good Y by _____.

Accepted Answer

A)  40; 50 
B)  25; -5 
C)  15; -5 
D)  50; 40 
A)  40; 50 
B)  25; -5 
C)  15; -5 
D)  50; 40

Question 5

Trade creates value because:

Accepted Answer

A)  people get what they want. 
B)  raw materials are transformed into finished products. 
C)  people exchange things they do not want for things they do. 
D)  idle resources are put to use. 
A)  people get what they want. 
B)  raw materials are transformed into finished products. 
C)  people exchange things they do not want for things they do. 
D)  idle resources are put to use.

Question 6

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 7

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 8

Employing comparative advantage increases the total satisfaction with what's produced, but not the total amount of what's produced.

Accepted Answer

A) True 
 B)False

Question 9

eBay creates value by:

Accepted Answer

A)  helping sellers trick buyers into purchasing broken items. 
B)  moving goods like broken laser pointers from people who don't want them to people who do. 
C)  helping people with the same preferences find each other. 
D)  moving toys from children who want them to children who don't. 
A)  helping sellers trick buyers into purchasing broken items. 
B)  moving goods like broken laser pointers from people who don't want them to people who do. 
C)  helping people with the same preferences find each other. 
D)  moving toys from children who want them to children who don't.

Question 10

The wage rate in India is lower than the wage rate in the United States because Indian workers are more productive than U.S. workers.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Comparative advantage occurs when an individual's opportunity cost for producing the same good or service is lower than that of another individual.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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. If both countries fully allocate all of their labor toward the good in which they have a comparative advantage, the combined production for the two countries would be _______ units of Good X, and _______ units of Good Y.

Accepted Answer

A)  100; 80 
B)  70; 90 
C)  40; 100 
D)  100; 100 
A)  100; 80 
B)  70; 90 
C)  40; 100 
D)  100; 100

Question 15

Use the following to answer questions: Figure: Comparative Advantage  
-(Figure: Comparative Advantage) The figure illustrates both the U.S. and Japanese production possibilities frontiers for TVs and wheat. Based on this information, which of the following is TRUE?

Accepted Answer

A)  The opportunity cost of producing a TV in the United States is 1/3 of a bushel of wheat. 
B)  The opportunity cost of producing a TV in the United States is 900 bushels of wheat. 
C)  The opportunity cost of producing a TV in Japan is 2 bushels of wheat. 
D)  The opportunity cost of producing a bushel of wheat in Japan is 2 TVs. 
A)  The opportunity cost of producing a TV in the United States is 1/3 of a bushel of wheat. 
B)  The opportunity cost of producing a TV in the United States is 900 bushels of wheat. 
C)  The opportunity cost of producing a TV in Japan is 2 bushels of wheat. 
D)  The opportunity cost of producing a bushel of wheat in Japan is 2 TVs.

Question 16

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 17

Specialization is an example of self-interest aligning with the social interest because it increases the amount you can consume as well as the amount society can consume.

Accepted Answer

A) True 
 B)False

Question 18

Use the following to answer questions: Figure: Computers and Books  
-(Figure: Computers and Books) According to the figure, the opportunity cost of producing books:

Accepted Answer

A)  is higher for country A than for country B. 
B)  is higher for country B than for country A. 
C)  is the same for countries A and B. 
D)  cannot be determined. 
A)  is higher for country A than for country B. 
B)  is higher for country B than for country A. 
C)  is the same for countries A and B. 
D)  cannot be determined.

Question 19

Use the following to answer question 82:
Table: Production in France and Italy $$\begin{array}{l}
\text { Labor units required to produce: }\
\begin{array} { l c c } 
& \text { One Bag of Truffles } & \text { One Pair of Wool Socks } \
\hline \text { France } & 1 & 1 \
\text { Italy } & 2 & 4 \
\hline
\end{array}
\end{array}$$
-Which statement is TRUE?

Accepted Answer

A)  It is virtually impossible for a country to be the low-cost producer of all goods and services. 
B)  The benefits of trade depend on absolute advantage, not comparative advantage. 
C)  A country could have a comparative advantage in producing everything. 
D)  A country that has the absolute advantage in production will also have the comparative advantage. 
A)  It is virtually impossible for a country to be the low-cost producer of all goods and services. 
B)  The benefits of trade depend on absolute advantage, not comparative advantage. 
C)  A country could have a comparative advantage in producing everything. 
D)  A country that has the absolute advantage in production will also have the comparative advantage.

Question 20

Brazil and Canada trade two goods: bananas and ice pops. Brazil has a comparative advantage in banana production. This means that:

Accepted Answer

A)  Brazil also has a comparative advantage in ice pop production. 
B)  Canada has a comparative advantage in ice pop production. 
C)  neither country has a comparative advantage in ice pop production. 
D)  both countries have a comparative advantage in ice pop production. 
A)  Brazil also has a comparative advantage in ice pop production. 
B)  Canada has a comparative advantage in ice pop production. 
C)  neither country has a comparative advantage in ice pop production. 
D)  both countries have a comparative advantage in ice pop production.

Exam 2: The Power of Trade and Comparative

If it was impossible to have a comparative advantage, there would be no gains from trade.

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

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

Trade creates value because:

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

The real cost of producing a good is:

Employing comparative advantage increases the total satisfaction with what's produced, but not the total amount of what's produced.

eBay creates value by:

The wage rate in India is lower than the wage rate in the United States because Indian workers are more productive than U.S. workers.

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 ______.

Comparative advantage occurs when an individual's opportunity cost for producing the same good or service is lower than that of another individual.

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.

Use the following to answer questions: Figure: Comparative Advantage -(Figure: Comparative Advantage) The figure illustrates both the U.S. and Japanese production possibilities frontiers for TVs and wheat. Based on this information, which of the following is TRUE?

The theory of comparative advantage is:

Specialization is an example of self-interest aligning with the social interest because it increases the amount you can consume as well as the amount society can consume.

Use the following to answer questions: Figure: Computers and Books -(Figure: Computers and Books) According to the figure, the opportunity cost of producing books:

Use the following to answer question 82: Table: Production in France and Italy Labor units required to produce: One Bag of Truffles One Pair of Wool Socks France 1 1 Italy 2 4 -Which statement is TRUE?

Brazil and Canada trade two goods: bananas and ice pops. Brazil has a comparative advantage in banana production. This means that:

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, the United States has a comparative advantage in and an absolute advantage in .