Exam 2: The Power of Trade and Comparative Advantage

Which of the following is TRUE regarding trade? I. Trade creates value by moving goods from people that value them less to people that value them more. II. Trade makes everyone better off. III. The only potential losses from trade come when the seller values the good more than the buyer.

Adam Smith said, "It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor." Which of the following concepts best illustrates what Smith wanted to convey in this statement?

Wage rates are primarily based on the:

Trading increases the amount a single country can produce.

Reference: Ref 2-9 (Figure: Countries A & B) Refer to the figure regarding countries A &B. Assume that each country begins by allocating half its labor force to the production of each good. Through trade with each other, each country could increase its consumption of both goods if Country A moved part of its labor force to the production of Good _____ and Country B moved part of its labor force to the production of Good _____.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 _____.

Which of the scenarios below best displays how international trade allows for specialization?

eBay creates value by:

Reference: Ref 2-1 (Table: iPhone and iPod Production) According to the table on iPhone and iPod Production, the opportunity cost of producing one iPhone is:

Reference: Ref 2-3 (Figure: PPF Nickel & Textiles) Refer to the figure. What is the maximum amount of textiles China can produce?

A country has a comparative advantage in producing one good if its labor cost is lower than that for other countries.

Reference: Ref 2-7 (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 pasta for Italy is:

The production possibilities frontier has a negative slope and illustrates the notion of trade-offs: As more units of one good are produced, fewer resources are left to produce the other good.

Why is specialization so advantageous to trade? I. Through specialization, people and firms can achieve economies of scale. II. Through specialization, people and firms can use specialized machinery and techniques. III. Trade exists only between people and firms that have complete specialization in the goods they are best at producing.

Which of the following is NOT true of trade?

Large cities should have more professional closet organizers than small cities.

A fundamental idea behind the production possibilities frontier is:

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

Why does specialization become more profitable on a larger scale? I. Large firms are more profitable than small firms. II. Cost efficiencies become possible when the production scale is significantly large relative to the cost of the machines being used. III. Large-scale production justifies the acquisition of more knowledge on a specific activity.

Which of the following has NOT played a significant role in recent developments leading to increased trade and globalization?

The trade networks of the Roman Empire: