Question 1

To benefit the most from trade, a person should:

Accepted Answer

A)  specialize in an activity for which she has an absolute advantage. 
B)  specialize in an activity for which she has a comparative advantage. 
C)  do everything she possibly can. 
D)  do as little as possible. 
A)  specialize in an activity for which she has an absolute advantage. 
B)  specialize in an activity for which she has a comparative advantage. 
C)  do everything she possibly can. 
D)  do as little as possible.

Question 2

Babe Ruth could produce two home runs in a week of play as a fielder or one win in a week of play as a pitcher. What was his opportunity cost for a week of pitching?

Accepted Answer

A)  one win 
B)  two wins 
C)  one home run 
D)  two home runs 
A)  one win 
B)  two wins 
C)  one home run 
D)  two home runs

Question 3

Which of the following statements is TRUE?

Accepted Answer

A)  Trade makes workers in high productivity countries less productive. 
B)  Trade causes workers in low-wage countries to receive an even lower wage. 
C)  Specialization and trade raise wages in both countries that are party to the trade. 
D)  Specialization and trade raise productivity but not wages. 
A)  Trade makes workers in high productivity countries less productive. 
B)  Trade causes workers in low-wage countries to receive an even lower wage. 
C)  Specialization and trade raise wages in both countries that are party to the trade. 
D)  Specialization and trade raise productivity but not wages.

Question 4

In many universities, graduate students are employed to teach introductory undergraduate courses, even though the full professors at these universities have more experience and could potentially teach these courses better. Which of the following best explains why universities choose to hire graduate students instead of full professors to teach their introductory courses?

Accepted Answer

A)  Graduate students are cheaper. 
B)  The opportunity cost of teaching an introductory course is higher for full professors than for graduate students. 
C)  The opportunity cost of teaching an introductory course is higher for graduate students than for full professors. 
D)  Introductory classes are the best place for graduate students to build their teaching skills. 
A)  Graduate students are cheaper. 
B)  The opportunity cost of teaching an introductory course is higher for full professors than for graduate students. 
C)  The opportunity cost of teaching an introductory course is higher for graduate students than for full professors. 
D)  Introductory classes are the best place for graduate students to build their teaching skills.

Question 5

Gains from international trade are best characterized as potential gains from:

Accepted Answer

A)  importation. 
B)  exportation. 
C)  neither importation nor exportation. 
D)  both importation and exportation. 
A)  importation. 
B)  exportation. 
C)  neither importation nor exportation. 
D)  both importation and exportation.

Question 6

A country produces and consumes eight units of sugar cane costing $50 per unit and two iPods that cost $200 each. After specialization and trade, that country consumes eight units of sugar cane and four iPods. With 24 units of labor, what are wages in this country?

Accepted Answer

A)  $33.33 without trade and $50 with trade 
B)  $50 without trade and $75 with trade 
C)  $50 without trade and $33.33 with trade 
D)  $33.33 without trade and $75 with trade 
A)  $33.33 without trade and $50 with trade 
B)  $50 without trade and $75 with trade 
C)  $50 without trade and $33.33 with trade 
D)  $33.33 without trade and $75 with trade

Question 7

Trade refers to the exchange of goods or services between two parties.

Accepted Answer

A) True 
 B)False

Question 8

Use the following to answer questions: Figure: Countries A and B  
-(Figure: Countries A and B) Refer to the figure. According to the diagram about countries A and B, which of the following statement(s) is correct? I. Country A has a comparative advantage in Good Y.
II. Country B has an absolute advantage in both goods.
III. Country B has a comparative advantage in Good X.

Accepted Answer

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

Question 9

Use the following to answer questions: Table: Production Possibilities for Italy and Belgium $$\begin{array}{l}
\text { Labor Hours Needed to Make One }\
\begin{array} { l c c c c } 
&  { \text { Pound of: } } & &{ \text { Pounds produced in } 40 \text { hours: } } \
\hline & \text { Linen } & \text { Pasta } & \text { Linen } & \text { Pasta } \
\hline \text { Italy } & 10 & 4 & 4 & 10 \
\text { Belgium } & 2 & 8 & 20 & 5 \
\hline
\end{array}
\end{array}$$
-(Table: Production Possibilities for Italy and Belgium) According to the table on production possibilities for Italy and Belgium, the opportunity cost of 1 pound of linen for Italy is:

Accepted Answer

A)  10 pounds of pasta. 
B)  1/4 pound of pasta 
C)  4 pounds of pasta 
D)  2 1/2 pounds of pasta 
A)  10 pounds of pasta. 
B)  1/4 pound of pasta 
C)  4 pounds of pasta 
D)  2 1/2 pounds of pasta

Question 10

Which of the following statements shows how absolute advantage can be distinguished from comparative advantage?

Accepted Answer

A)  Absolute advantage refers to the ability to produce a good using fewer inputs, while comparative advantage is based on the monthly amount. 
B)  Absolute advantage is based on the yearly production amount that a country can produce, while comparative advantage is based on the monthly production amount. 
C)  Absolute advantage refers to the ability to produce a larger amount of goods with the same number of inputs, whereas comparative advantage refers to the ability to have the lowest opportunity cost of production. 
D)  Absolute advantage is based on the amount of land a country has to use, while comparative advantage is based on the cost of the labor. 
A)  Absolute advantage refers to the ability to produce a good using fewer inputs, while comparative advantage is based on the monthly amount. 
B)  Absolute advantage is based on the yearly production amount that a country can produce, while comparative advantage is based on the monthly production amount. 
C)  Absolute advantage refers to the ability to produce a larger amount of goods with the same number of inputs, whereas comparative advantage refers to the ability to have the lowest opportunity cost of production. 
D)  Absolute advantage is based on the amount of land a country has to use, while comparative advantage is based on the cost of the labor.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

How is slope, measured as rise over run, related to the production possibilities frontier?

Accepted Answer

A)  Slope measures the fixed costs of producing Good X and Good Y. For a slope of -3, the fixed cost of producing either Good X or Good Y is $3 multiplied by the number of units produced. 
B)  Slope gives the opportunity cost of producing an additional unit of the good on the x-axis. So, if the slope is -3, the country must give up producing one-third of a unit of Good Y for every additional unit of Good X it produces. 
C)  Slope gives the fixed cost of producing an additional unit of the good on the x-axis. So, if the slope is -3, the country must give up producing one-third of a unit of Good Y for every additional unit of Good X it produces. 
D)  Slope gives the opportunity cost of producing an additional unit of the good on the x-axis. So, if the slope is -3, the country must give up producing 3 units of Good Y for every additional unit of Good X it produces. 
A)  Slope measures the fixed costs of producing Good X and Good Y. For a slope of -3, the fixed cost of producing either Good X or Good Y is $3 multiplied by the number of units produced. 
B)  Slope gives the opportunity cost of producing an additional unit of the good on the x-axis. So, if the slope is -3, the country must give up producing one-third of a unit of Good Y for every additional unit of Good X it produces. 
C)  Slope gives the fixed cost of producing an additional unit of the good on the x-axis. So, if the slope is -3, the country must give up producing one-third of a unit of Good Y for every additional unit of Good X it produces. 
D)  Slope gives the opportunity cost of producing an additional unit of the good on the x-axis. So, if the slope is -3, the country must give up producing 3 units of Good Y for every additional unit of Good X it produces.

Question 13

If you have a comparative advantage in washing dishes, then you also have an absolute advantage in washing dishes.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is typically a result of the division of knowledge?

Accepted Answer

A)  The society runs with the knowledge of a few persons. 
B)  Each person has the same knowledge as everyone else. 
C)  Labor productivity is higher.. 
D)  No one specializes in any activity. 
A)  The society runs with the knowledge of a few persons. 
B)  Each person has the same knowledge as everyone else. 
C)  Labor productivity is higher.. 
D)  No one specializes in any activity.

Question 15

Specializing in one's comparative advantage and trading with others will make individuals better off, but may not make countries better off.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is NOT true regarding the production possibilities frontier (PPF)?

Accepted Answer

A)  The PPF shows the combination of goods that a country can produce given its current productivity and supply of resources. 
B)  The PPF illustrates the trade-offs that exist in the production of goods. 
C)  The PPF shows us that gains from trade are maximized when countries produce goods for which they have an absolute advantage in production. 
D)  The PPF illustrates the fundamental ideas of scarcity and opportunity cost. 
A)  The PPF shows the combination of goods that a country can produce given its current productivity and supply of resources. 
B)  The PPF illustrates the trade-offs that exist in the production of goods. 
C)  The PPF shows us that gains from trade are maximized when countries produce goods for which they have an absolute advantage in production. 
D)  The PPF illustrates the fundamental ideas of scarcity and opportunity cost.

Question 17

Phil can clean and polish silverware in two hours and change spark plugs in a car in four hours. Betty can clean and polish the same silverware in 1 hour and change spark plugs in a car in 1 hour. Phil does not have a comparative advantage in either activity.

Accepted Answer

A) True 
 B)False

Question 18

The fundamental idea behind the production possibilities frontier is:

Accepted Answer

A)  the idea of absolute advantage. 
B)  the trade-offs that exist in production. 
C)  that economic growth is unlimited. 
D)  that incentives matter. 
A)  the idea of absolute advantage. 
B)  the trade-offs that exist in production. 
C)  that economic growth is unlimited. 
D)  that incentives matter.

Question 19

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. Conan's opportunity cost of rehearsing and hosting a show is:

Accepted Answer

A)  0.2 usable jokes. 
B)  0.5 usable jokes. 
C)  4 usable jokes. 
D)  5 usable jokes. 
A)  0.2 usable jokes. 
B)  0.5 usable jokes. 
C)  4 usable jokes. 
D)  5 usable jokes.

Question 20

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.

Exam 2: The Power of Trade and Comparative

To benefit the most from trade, a person should:

Babe Ruth could produce two home runs in a week of play as a fielder or one win in a week of play as a pitcher. What was his opportunity cost for a week of pitching?

Which of the following statements is TRUE?

Gains from international trade are best characterized as potential gains from:

A country produces and consumes eight units of sugar cane costing $50 per unit and two iPods that cost $200 each. After specialization and trade, that country consumes eight units of sugar cane and four iPods. With 24 units of labor, what are wages in this country?

Trade refers to the exchange of goods or services between two parties.

Which of the following statements shows how absolute advantage can be distinguished from comparative advantage?

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

How is slope, measured as rise over run, related to the production possibilities frontier?

If you have a comparative advantage in washing dishes, then you also have an absolute advantage in washing dishes.

Which of the following is typically a result of the division of knowledge?

Specializing in one's comparative advantage and trading with others will make individuals better off, but may not make countries better off.

Which of the following is NOT true regarding the production possibilities frontier (PPF)?

Phil can clean and polish silverware in two hours and change spark plugs in a car in four hours. Betty can clean and polish the same silverware in 1 hour and change spark plugs in a car in 1 hour. Phil does not have a comparative advantage in either activity.

The fundamental idea behind the production possibilities frontier 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:

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