Question 1

Trade tends to:

Accepted Answer

A)  increase wages in developed countries, but decrease wages in lesser-developed countries. 
B)  decrease wages in developed countries, but increase wages in lesser-developed countries. 
C)  decrease wages in all countries. 
D)  increase wages in all countries. 
A)  increase wages in developed countries, but decrease wages in lesser-developed countries. 
B)  decrease wages in developed countries, but increase wages in lesser-developed countries. 
C)  decrease wages in all countries. 
D)  increase wages in all countries.

Question 2

Workers in high-productivity countries fear trade because they think they cannot compete with workers in low-productivity countries. Workers in low-productivity countries fear trade because they think they cannot compete with workers in high- productivity countries. Which set of fears is justified?

Accepted Answer

A)  The fears of workers in high-productivity countries are justified, but the fears of workers in low-productivity countries are not. 
B)  The fears of workers in low-productivity countries are justified, but the fears of workers in high-productivity countries are not. 
C)  Both sets of fears are justified. 
D)  Neither set of fears is justified. 
A)  The fears of workers in high-productivity countries are justified, but the fears of workers in low-productivity countries are not. 
B)  The fears of workers in low-productivity countries are justified, but the fears of workers in high-productivity countries are not. 
C)  Both sets of fears are justified. 
D)  Neither set of fears is justified.

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

Which of the following best describes the principle of comparative advantage?

Accepted Answer

A)  Some people can produce the same good better than other producers can. 
B)  Someone has the ability to produce the same good using fewer inputs than another producer. 
C)  Someone has the ability to produce the same good for the lowest opportunity cost. 
D)  To produce more of one good, people have to produce less of another good. 
A)  Some people can produce the same good better than other producers can. 
B)  Someone has the ability to produce the same good using fewer inputs than another producer. 
C)  Someone has the ability to produce the same good for the lowest opportunity cost. 
D)  To produce more of one good, people have to produce less of another good.

Question 5

A country has an absolute advantage in production if:

Accepted Answer

A)  it can produce the same good using fewer inputs than another country. 
B)  it can produce a good using fewer inputs than it takes another country to produce a different good. 
C)  other countries can produce the same good using fewer inputs. 
D)  it has the lowest opportunity cost of producing a good. 
A)  it can produce the same good using fewer inputs than another country. 
B)  it can produce a good using fewer inputs than it takes another country to produce a different good. 
C)  other countries can produce the same good using fewer inputs. 
D)  it has the lowest opportunity cost of producing a good.

Question 6

Which of the following statements is TRUE? I. It is virtually impossible for a country to be the low-cost producer of all goods and services. II. The benefits of trade depend on absolute advantage, not comparative advantage. III. A country could have a comparative advantage in producing everything.

Accepted Answer

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

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is TRUE? I. If a country does not trade, its knowledge is approximately equal to that used by one brain. II. The basic idea of trade is to buy the things that would cost you a lot to make, and sell the things that you can make at a low opportunity cost. III. Trade leads to specialization, which in turn increases in productivity.

Accepted Answer

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

Question 9

What are the three major benefits of trade? Explain briefly.

Accepted Answer

Trade requires people or countries to sp

Question 10

The principles of comparative advantage, specialization, and trade apply to: I. individuals. II. communities. III. regions. IV. nations.

Accepted Answer

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

Question 11

Evidence from history shows that when the volume of trade expands, the result is prosperity.

Accepted Answer

A) True 
 B)False

Question 12

Reference: Ref 2-1 (Table: iPhone and iPod Production) According to the table on iPhone and iPod Production, which of the following is TRUE about Canadian and U.S. comparative advantages?

Accepted Answer

A)  Canada has a comparative advantage in producing both iPhones and iPods. 
B)  The United States has a comparative advantage in producing both iPhones and iPods. 
C)  Canada has a comparative advantage in producing iPhones, and the United States has a comparative advantage in producing iPods. 
D)  Canada has a comparative advantage in producing iPods, and the United States has a comparative advantage in producing iPhones. 
A)  Canada has a comparative advantage in producing both iPhones and iPods. 
B)  The United States has a comparative advantage in producing both iPhones and iPods. 
C)  Canada has a comparative advantage in producing iPhones, and the United States has a comparative advantage in producing iPods. 
D)  Canada has a comparative advantage in producing iPods, and the United States has a comparative advantage in producing iPhones.

Question 13

Trade refers to the exchange of goods and services between at least two different nations.

Accepted Answer

A) True 
 B)False

Question 14

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 15

In Spain it takes 10 workers to produce one barrel of wine and four workers to produce one yard of cloth. Thus, the opportunity cost of producing one barrel of wine is 2.5 yards of cloth.

Accepted Answer

A) True 
 B)False

Question 16

According to Adam Smith:

Accepted Answer

A)  trade is a way for rich people to exploit poor people. 
B)  trade within a nation benefits people but international trade does not. 
C)  trade does not benefit anyone, either at home or abroad. 
D)  people buy goods for which they have higher opportunity costs than others. 
A)  trade is a way for rich people to exploit poor people. 
B)  trade within a nation benefits people but international trade does not. 
C)  trade does not benefit anyone, either at home or abroad. 
D)  people buy goods for which they have higher opportunity costs than others.

Question 17

Absolute advantage derives from which of the following?

Accepted Answer

A)  the lowest cost production 
B)  the most suitable climate 
C)  the least expensive labor force 
D)  the best educated labor force 
A)  the lowest cost production 
B)  the most suitable climate 
C)  the least expensive labor force 
D)  the best educated labor force

Question 18

James and Linda must prepare a presentation for their marketing class. As part of their presentation, they must do a marketing plan and prepare 40 PowerPoint slides. It would take James 5 hours to do the required plan and 5 hours to prepare the slides. It would take Linda 6 hours to do the plan and 10 hours to prepare the slides. a. How much time would it take the two to complete the project if they divide the writing of the marketing plan equally and the development of the slides equally? b. How much time would it take the two to complete the project if they use comparative advantage and specialize in writing the marketing plan or preparing slides? c. If James and Linda have the same opportunity cost of $5 per hour, is there a better solution than for each to specialize?

Accepted Answer

a. If both tasks are divided equally, it

Question 19

If a country's domestic price of a good is lower than the world price, then that country has a comparative advantage in producing that good.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 2: The Power of Trade and Comparative Advantage

Trade tends to:

Workers in high-productivity countries fear trade because they think they cannot compete with workers in low-productivity countries. Workers in low-productivity countries fear trade because they think they cannot compete with workers in high- productivity countries. Which set of fears is justified?

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

Which of the following best describes the principle of comparative advantage?

A country has an absolute advantage in production if:

Which of the following statements is TRUE? I. It is virtually impossible for a country to be the low-cost producer of all goods and services. II. The benefits of trade depend on absolute advantage, not comparative advantage. III. A country could have a comparative advantage in producing everything.

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

What are the three major benefits of trade? Explain briefly.

The principles of comparative advantage, specialization, and trade apply to: I. individuals. II. communities. III. regions. IV. nations.

Evidence from history shows that when the volume of trade expands, the result is prosperity.

Reference: Ref 2-1 (Table: iPhone and iPod Production) According to the table on iPhone and iPod Production, which of the following is TRUE about Canadian and U.S. comparative advantages?

Trade refers to the exchange of goods and services between at least two different nations.

The real cost of producing a good is:

In Spain it takes 10 workers to produce one barrel of wine and four workers to produce one yard of cloth. Thus, the opportunity cost of producing one barrel of wine is 2.5 yards of cloth.

According to Adam Smith:

Absolute advantage derives from which of the following?

If a country's domestic price of a good is lower than the world price, then that country has a comparative advantage in producing that good.

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

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

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