Question 1

Knowledge increases ____________ and specialization __________ total output.

Accepted Answer

A)  education; increases 
B)  productivity; increases 
C)  perception; increases 
D)  economies of scale; decreases 
A)  education; increases 
B)  productivity; increases 
C)  perception; increases 
D)  economies of scale; decreases

Question 2

The benefits of economies of scale and increased competition to an economy include: I. lower unit costs. II. lower consumer prices. III. lower output levels.

Accepted Answer

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

Question 3

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 4

If a country has an absolute advantage in both items when compared to another country, there can never be any benefit for them to trade.

Accepted Answer

A) True 
 B)False

Question 5

Reference: Ref 2-4 (Figure: PPF Mexico & U.S.) Use the figure in which both Mexico and the United States each have 24 units of labor. The opportunity costs of producing one computer are:

Accepted Answer

A)  six shirts for Mexico and one shirt for the United States. 
B)  1/6 of a shirt for both Mexico and the United States. 
C)  one shirt for Mexico and 1/6 of a shirt for the United States. 
D)  six shirts for both Mexico and the United States. 
A)  six shirts for Mexico and one shirt for the United States. 
B)  1/6 of a shirt for both Mexico and the United States. 
C)  one shirt for Mexico and 1/6 of a shirt for the United States. 
D)  six shirts for both Mexico and the United States.

Question 6

Reference: Ref 2-7 (Table: Production Possibilities for Italy and Belgium) According to the table on Production Possibilities for Italy and Belgium, Italy has comparative advantage in:

Accepted Answer

A)  both goods, while Belgium has comparative advantage in neither good. 
B)  linen, while Belgium has comparative advantage in pasta. 
C)  pasta, while Belgium has comparative advantage in linen. 
D)  neither good, while Belgium has comparative advantage in both goods. 
A)  both goods, while Belgium has comparative advantage in neither good. 
B)  linen, while Belgium has comparative advantage in pasta. 
C)  pasta, while Belgium has comparative advantage in linen. 
D)  neither good, while Belgium has comparative advantage in both goods.

Question 7

To benefit 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 nothing at all. 
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 nothing at all.

Question 8

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 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 is not true for business or individuals.

Question 9

The human brain has no limits, so the division of knowledge decreases the total knowledge in society.

Accepted Answer

A) True 
 B)False

Question 10

When a rich country that has absolute advantages in all products begins trading with a poor country the wages in:

Accepted Answer

A)  the rich country will go down and the wages in the poor country will go up. 
B)  both countries will go up. 
C)  both countries will go down. 
D)  the rich country will go up and the wages in the poor country will go down. 
A)  the rich country will go down and the wages in the poor country will go up. 
B)  both countries will go up. 
C)  both countries will go down. 
D)  the rich country will go up and the wages in the poor country will go down.

Question 11

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 12

Reference: Ref 2-8 (Table: Production in the United States and Germany) According to the table, the opportunity cost of producing one clock in the United States is _________, and the opportunity cost of producing one clock in Germany is _______.

Accepted Answer

A)  five sofas; nine sofas 
B)  0.4 sofas; 0.33 sofa 
C)  five clocks; nine clocks 
D)  2.5 clocks; three clocks 
A)  five sofas; nine sofas 
B)  0.4 sofas; 0.33 sofa 
C)  five clocks; nine clocks 
D)  2.5 clocks; three clocks

Question 13

According to the theory of comparative advantage, a country should specialize in producing a good that involves:

Accepted Answer

A)  more inputs than those in other countries. 
B)  fewer inputs than those in other countries. 
C)  a higher opportunity cost than that of other countries. 
D)  a lower opportunity cost than that of other countries. 
A)  more inputs than those in other countries. 
B)  fewer inputs than those in other countries. 
C)  a higher opportunity cost than that of other countries. 
D)  a lower opportunity cost than that of other countries.

Question 14

Many universities employ graduate students to teach introductory undergraduate courses, even though 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 utilize 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 15

Everyone, from the most to the least skilled to the most and least educated, can benefit from trade.

Accepted Answer

A) True 
 B)False

Question 16

Reference: Ref 2-5 (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 17

Reference: Ref 2-7 (Table: Production Possibilities for Italy and Belgium) According to the table on Production Possibilities for Italy and Belgium, Belgium should specialize in linen production because it:

Accepted Answer

A)  has an absolute advantage in producing linen and pasta. 
B)  can do so at a greater opportunity cost. 
C)  has a comparative advantage in producing linen. 
D)  already can produce enough pasta to meet demand. 
A)  has an absolute advantage in producing linen and pasta. 
B)  can do so at a greater opportunity cost. 
C)  has a comparative advantage in producing linen. 
D)  already can produce enough pasta to meet demand.

Question 18

A country has a comparative advantage in a good if:

Accepted Answer

A)  it can produce more of that good than any other country. 
B)  it does not have an absolute advantage in that gooB. 
C)  it has the lowest opportunity cost of producing that gooC. 
D)  no other country is willing to buy that good from it. 
A)  it can produce more of that good than any other country. 
B)  it does not have an absolute advantage in that gooB. 
C)  it has the lowest opportunity cost of producing that gooC. 
D)  no other country is willing to buy that good from it.

Question 19

Reference: Ref 2-5 (Table: Production Possibilities for the United States and Mexico) According to the table on Production Possibilities for the United States and Mexico, the United States has an absolute advantage in ________ and a comparative advantage in _________.

Accepted Answer

A)  both goods; corn 
B)  both goods; potatoes 
C)  potatoes; corn 
D)  nothing; potatoes 
A)  both goods; corn 
B)  both goods; potatoes 
C)  potatoes; corn 
D)  nothing; potatoes

Question 20

Reference: Ref 2-6 (Table: Production Possibilities for Kenya and Sri Lanka) According to the table on Production Possibilities for Kenya and Sri Lanka, which of the following answers identifies a trade price that both countries would find acceptable? (Units are in tons.)

Accepted Answer

A)  0.5 bean for one tea < Trade price < two teas for one bean 
B)  0.5 bean for one tea < Trade price < three beans for one tea 
C)  two teas for one bean < Trade price < three teas for one bean 
D)  0.3 bean for one tea < Trade price < two beans for one tea 
A)  0.5 bean for one tea < Trade price < two teas for one bean 
B)  0.5 bean for one tea < Trade price < three beans for one tea 
C)  two teas for one bean < Trade price < three teas for one bean 
D)  0.3 bean for one tea < Trade price < two beans for one tea

Exam 2: The Power of Trade and Comparative Advantage

Knowledge increases ____________ and specialization __________ total output.

The benefits of economies of scale and increased competition to an economy include: I. lower unit costs. II. lower consumer prices. III. lower output levels.

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 when compared to another country, there can never be any benefit for them to trade.

Reference: Ref 2-4 (Figure: PPF Mexico & U.S.) Use the figure in which both Mexico and the United States each have 24 units of labor. The opportunity costs of producing one computer are:

Reference: Ref 2-7 (Table: Production Possibilities for Italy and Belgium) According to the table on Production Possibilities for Italy and Belgium, Italy has comparative advantage in:

To benefit from trade, a person should:

The theory of comparative advantage is:

The human brain has no limits, so the division of knowledge decreases the total knowledge in society.

When a rich country that has absolute advantages in all products begins trading with a poor country the wages in:

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

Reference: Ref 2-8 (Table: Production in the United States and Germany) According to the table, the opportunity cost of producing one clock in the United States is _________, and the opportunity cost of producing one clock in Germany is _______.

According to the theory of comparative advantage, a country should specialize in producing a good that involves:

Everyone, from the most to the least skilled to the most and least educated, can benefit from trade.

Reference: Ref 2-7 (Table: Production Possibilities for Italy and Belgium) According to the table on Production Possibilities for Italy and Belgium, Belgium should specialize in linen production because it:

A country has a comparative advantage in a good if:

Reference: Ref 2-5 (Table: Production Possibilities for the United States and Mexico) According to the table on Production Possibilities for the United States and Mexico, the United States has an absolute advantage in ________ and a comparative advantage in _________.

Reference: Ref 2-6 (Table: Production Possibilities for Kenya and Sri Lanka) According to the table on Production Possibilities for Kenya and Sri Lanka, which of the following answers identifies a trade price that both countries would find acceptable? (Units are in tons.)

The Big Ideas in Economics

Business Fluctuations: Aggregate Demand and Supply

Equilibrium: How Supply and Demand Determine Prices

Elasticity and Its Applications

Taxes and Subsidies

The Price System: Signals, Speculation, and Prediction

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 and Pricing Strategy

Oligopoly and Game Theory

Competing for Monopoly: the Economics of Network Goods

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

Asymmetric Information: Moral Hazard and Adverse Selection

Consumer Choice

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

Supply and Demand

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Transmission and Amplification Mechanisms

The Federal Reserve System and Open Market Operations

Monetary Policy

The Federal Budget: Taxes and Spending

Filters

Knowledge increases __ and specialization total output.

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

Reference: Ref 2-8 (Table: Production in the United States and Germany) According to the table, the opportunity cost of producing one clock in the United States is ___, and the opportunity cost of producing one clock in Germany is _.

Reference: Ref 2-5 (Table: Production Possibilities for the United States and Mexico) According to the table on Production Possibilities for the United States and Mexico, the United States has an absolute advantage in and a comparative advantage in _.