Question 1

When people focus their efforts, on the tasks they have a comparative advantage in, what will happen to output?

Accepted Answer

A) There will be less total output, but the output will grow for highly valued goods. 
B) The total output will shrink because it is not produced by the person who can do it fastest. 
C) Total output will rise and automatically be equally distributed across persons. 
D) More of all goods will be produced than if everyone produced everything for themselves. 
A) There will be less total output, but the output will grow for highly valued goods. 
B) The total output will shrink because it is not produced by the person who can do it fastest. 
C) Total output will rise and automatically be equally distributed across persons. 
D) More of all goods will be produced than if everyone produced everything for themselves.

Question 2

Managers can harness market forces by setting up internal markets, which:

Accepted Answer

A) have a geographic scope limited to one country with no international transactions. 
B) trade only with employees rather than companies and governments. 
C) buy and sell raw materials rather than finished products. 
D) are organized within a company to buy and sell scarce resources. 
A) have a geographic scope limited to one country with no international transactions. 
B) trade only with employees rather than companies and governments. 
C) buy and sell raw materials rather than finished products. 
D) are organized within a company to buy and sell scarce resources.

Question 3

If they produce only sandwiches, in a single day, Seraphim can produce 10 sandwiches, and Abigail can produce five sandwiches. If they make only root beer floats, in a single day, Seraphim can produce 10 root beer floats, and Abigail can produce four root beer floats. Therefore, _____ has an absolute advantage and a comparative advantage in making _____.

Accepted Answer

A) Seraphim; sandwiches 
B) Seraphim; root beer floats 
C) Abigail; sandwiches 
D) Abigail; root beer floats 
A) Seraphim; sandwiches 
B) Seraphim; root beer floats 
C) Abigail; sandwiches 
D) Abigail; root beer floats

Question 4

Which of the following headlines is NOT consistent with the principle of comparative advantage?

Accepted Answer

A) Island lessens welfare by promoting trade. 
B) Famous actress hires a new nanny. 
C) Providers of household services see growth in demand. 
D) Consultant recommends workforce specialization. 
A) Island lessens welfare by promoting trade. 
B) Famous actress hires a new nanny. 
C) Providers of household services see growth in demand. 
D) Consultant recommends workforce specialization.

Question 5

If Ilona wants to live her life based on comparative advantage, then she should

Accepted Answer

A) try to earn as much as possible so that she can buy as much as possible. 
B) do those things for herself that she can do most quickly and then trade with others. 
C) focus her time on the things she can do. 
D) do for herself the things for which she has low opportunity cost and trade with others for things she has a high opportunity cost. 
A) try to earn as much as possible so that she can buy as much as possible. 
B) do those things for herself that she can do most quickly and then trade with others. 
C) focus her time on the things she can do. 
D) do for herself the things for which she has low opportunity cost and trade with others for things she has a high opportunity cost.

Question 6

Jane sells bowls of noodles for $6 at her noodle shop. The average price of a bowl of noodles in the city starts rising. In response to this, Jane starts to produce more bowls of noodles and raises her price to $6.50. This is an example of price functioning as

Accepted Answer

A) an incentive. 
B) a currency. 
C) a bundle of information. 
D) a signal. 
A) an incentive. 
B) a currency. 
C) a bundle of information. 
D) a signal.

Question 7

(Table: Bruno and Sasha's comparative advantage) The table provides data on the number of minutes it takes for Bruno and Sasha to change a tire and iron a dress shirt. Use the data to answer the question.
Which statement explains who has a comparative advantage in changing a tire?

Accepted Answer

A) Sasha because she has a higher opportunity cost 
B) Bruno because he has a higher opportunity cost 
C) Sasha because she has a lower opportunity cost 
D) Bruno because he has a lower opportunity cost 
A) Sasha because she has a higher opportunity cost 
B) Bruno because he has a higher opportunity cost 
C) Sasha because she has a lower opportunity cost 
D) Bruno because he has a lower opportunity cost

Question 8

When people focus on their comparative advantage and then trade for other things, they:

Accepted Answer

A) improve their standard of living or increase their leisure time. 
B) focus their consumption on just a few things. 
C) increase the time they spend working and reduce the variety in their consumption. 
D) have a lower standard of living than if they focused on their absolute advantage. 
A) improve their standard of living or increase their leisure time. 
B) focus their consumption on just a few things. 
C) increase the time they spend working and reduce the variety in their consumption. 
D) have a lower standard of living than if they focused on their absolute advantage.

Question 9

Why would a company set up internal markets?

Accepted Answer

A) To solve a problem with product design. 
B) To solve the knowledge problem. 
C) To gain access to resources that were previously unavailable. 
D) To prevent the product price from falling. 
A) To solve a problem with product design. 
B) To solve the knowledge problem. 
C) To gain access to resources that were previously unavailable. 
D) To prevent the product price from falling.

Question 10

What is meant by the term "gains from trade"?

Accepted Answer

The answer of What is meant by the term "gains...

Question 11

(Table: Bruno and Sasha's opportunity cost) The table provides data on the number of minutes it takes for Bruno and Sasha to each change a tire and iron a dress shirt. Use the data to answer the question.
Which statement explains who has a comparative advantage in ironing a dress shirt?

Accepted Answer

A) Sasha because she has a higher opportunity cost. 
B) Bruno because he has a higher opportunity cost. 
C) Sasha because she has a lower opportunity cost. 
D) Bruno because he has a lower opportunity cost. 
A) Sasha because she has a higher opportunity cost. 
B) Bruno because he has a higher opportunity cost. 
C) Sasha because she has a lower opportunity cost. 
D) Bruno because he has a lower opportunity cost.

Question 12

If you need to make a decision and all the information needed to make a good decision is not available, then you:

Accepted Answer

A) have a knowledge problem. 
B) have to make a prediction. 
C) are dealing with a partitioning issue. 
D) face an analysis hurdle. 
A) have a knowledge problem. 
B) have to make a prediction. 
C) are dealing with a partitioning issue. 
D) face an analysis hurdle.

Question 13

Markets _____, and this generates _____.

Accepted Answer

A) sell goods; demand 
B) produce goods; uses for resources 
C) satisfy buyers; internal profits 
D) reallocate resources; gains from trade 
A) sell goods; demand 
B) produce goods; uses for resources 
C) satisfy buyers; internal profits 
D) reallocate resources; gains from trade

Question 14

When sellers and buyers adjust supply and demand in response to a price change signal, price is functioning as

Accepted Answer

A) a signal. 
B) a bundle of information. 
C) an incentive. 
D) a precursor. 
A) a signal. 
B) a bundle of information. 
C) an incentive. 
D) a precursor.

Question 15

The term "gains from trade" means the

Accepted Answer

A) total surplus in a market. 
B) higher prices that firms get when they sell abroad rather than in home markets. 
C) benefits that come from reallocating resources, goods, and services to better uses. 
D) alliances that nations make with each other when trade occurs between them. 
A) total surplus in a market. 
B) higher prices that firms get when they sell abroad rather than in home markets. 
C) benefits that come from reallocating resources, goods, and services to better uses. 
D) alliances that nations make with each other when trade occurs between them.

Question 16

(Table: Four Persons) The table lists the minutes that it will take four persons to wash a car and to sort and fold a load of laundry. Use the data to answer the question.
Who has a comparative advantage in sorting and folding a load of laundry?

Accepted Answer

A) Asad 
B) Junko 
C) Jason 
D) Jen 
A) Asad 
B) Junko 
C) Jason 
D) Jen

Question 17

Helena works in a factory that makes plastic phone cases. The four main tasks are mixing, molding, curing, and polishing. Out of all the workers, she is the fastest mixer, has the lowest opportunity cost for molding, is the most careful in curing, and enjoys polishing the most. If her manager makes assignments in a way that maximizes output, then she will be assigned to

Accepted Answer

A) mixing. 
B) molding. 
C) curing. 
D) polishing. 
A) mixing. 
B) molding. 
C) curing. 
D) polishing.

Question 18

Why would Emerald benefit from specializing based on comparative advantage?

Accepted Answer

A) She could enhance her living standards. 
B) She would be doing what she loves most. 
C) She would have a wide variety of skills. 
D) She could save her income rather than spend it. 
A) She could enhance her living standards. 
B) She would be doing what she loves most. 
C) She would have a wide variety of skills. 
D) She could save her income rather than spend it.

Question 19

In markets, prices act as all of the following except

Accepted Answer

A) incentives. 
B) signals. 
C) productivity. 
D) information. 
A) incentives. 
B) signals. 
C) productivity. 
D) information.

Question 20

To maximize production, people should

Accepted Answer

A) focus on the task in which they have an absolute advantage. 
B) focus on the task in which they have a comparative advantage. 
C) learn all the skills so that they can perform any task needed. 
D) focus on improving their weakest skills. 
A) focus on the task in which they have an absolute advantage. 
B) focus on the task in which they have a comparative advantage. 
C) learn all the skills so that they can perform any task needed. 
D) focus on improving their weakest skills.

Exam 8: Gains From Trade

When people focus their efforts, on the tasks they have a comparative advantage in, what will happen to output?

Managers can harness market forces by setting up internal markets, which:

Which of the following headlines is NOT consistent with the principle of comparative advantage?

If Ilona wants to live her life based on comparative advantage, then she should

Jane sells bowls of noodles for $6 at her noodle shop. The average price of a bowl of noodles in the city starts rising. In response to this, Jane starts to produce more bowls of noodles and raises her price to $6.50. This is an example of price functioning as

(Table: Bruno and Sasha's comparative advantage) The table provides data on the number of minutes it takes for Bruno and Sasha to change a tire and iron a dress shirt. Use the data to answer the question. Which statement explains who has a comparative advantage in changing a tire?

When people focus on their comparative advantage and then trade for other things, they:

Why would a company set up internal markets?

What is meant by the term "gains from trade"?

(Table: Bruno and Sasha's opportunity cost) The table provides data on the number of minutes it takes for Bruno and Sasha to each change a tire and iron a dress shirt. Use the data to answer the question. Which statement explains who has a comparative advantage in ironing a dress shirt?

If you need to make a decision and all the information needed to make a good decision is not available, then you:

Markets _____, and this generates _____.

When sellers and buyers adjust supply and demand in response to a price change signal, price is functioning as

The term "gains from trade" means the

(Table: Four Persons) The table lists the minutes that it will take four persons to wash a car and to sort and fold a load of laundry. Use the data to answer the question. Who has a comparative advantage in sorting and folding a load of laundry?

Why would Emerald benefit from specializing based on comparative advantage?

In markets, prices act as all of the following except

To maximize production, people should

The Core Principles of Economics

Demand: Thinking Like a Buyer

Supply: Thinking Like a Seller

Equilibrium: Where Supply Meets Demand

Elasticity: Measuring Responsiveness

When Governments Intervene in Markets

Welfare and Efficiency

International Trade

Externalities and Public Goods

Labor Demand and Supply

Wages, Workers, and Management

Inequality, Social Insurance, and Redistribution

Market Structure and Market Power

Entry, Exit, and Long-Run Profitability

Business Strategy

Sophisticated Pricing Strategies

Game Theory and Strategic Choices

Decisions Involving Uncertainty

Decisions With Private Information

Sizing up the Economy Using Gdp

Economic Growth

Unemployment

Inflation and Money

Consumption and Saving

Investment

The Financial Sector

International Finance and the Exchange Rate

Business Cycles

IS-MP Analysis: Interest Rates and Output

Phillips Curve

The Fed Model: Linking Interest Rates, Output, and Inflation

Aggregate Demand and Aggregate Supply

Monetary Policy

Government Spending, Taxes, and Fiscal Policy

Appendix: Aggregate Expenditure and the Multiplier

Filters

Markets _, and this generates _.