Deck 2: Prices,costs and Gains From Trade

Question 1

The relative price of bread in terms of wine is the amount of wine which can be traded in exchange for a loaf of bread.

Answer 1

True

Question 2

A farmer has a comparative advantage at growing wheat if his cost of growing wheat is less than the cost of another farmer growing wheat.

Answer 2

True

Question 3

The cost of producing furniture is not the resources used in its production,but the alternative uses for those resources.

Answer 3

True

Question 4

When silk is shipped from China to Atlanta,transportation costs will make the price of high-quality silk relative to low-quality silk higher in Atlanta than in China.

Question 5

By definition,someone who has an absolute advantage must also have a comparative advantage.

Question 6

A rise in absolute prices guarantees that relative prices will rise as well.

Question 7

When absolute prices are measured in terms of dollars,the term dollar refers to currency.

Question 8

The most efficient house cleaner is the person who has the lowest cost of cleaning houses.

Question 9

When relative prices are measured in terms of dollars,the term dollar refers to currency.

Question 10

To an economist,a cost is a forgone opportunity.

Question 11

If all absolute prices increase by 10%,then the economy's relative prices will remain unchanged.

Question 12

Relative prices cannot fall when absolute prices are rising.

Question 13

A farmer has a comparative advantage at growing wheat if his cost of growing wheat is smaller than his cost of growing any other crop.

Question 14

If only materials and workers are used to make a computer and the materials cost $100 and labor costs $200,then the cost of making the computer is $300.

Question 15

If the relative price of a gallon of water in terms of milk increases from 1 gallon to 1.5 gallons of milk,then the relative price of milk has fallen.

Question 16

If there are only two activities on which a person can work,and there are two people to do the work,then it is impossible for one person to have a comparative advantage in both activities.

Question 17

The most efficient typist is the one who can type the greatest number of words per minute.

Question 18

By definition,someone who has a comparative advantage in producing soft drinks must also have an absolute advantage in producing soft drinks.

Question 19

An increase in the price of gasoline relative to telephones will cause inflation.

Question 20

The term price as used in microeconomics refers to the absolute price of a commodity.

Question 21

Suppose there are only two goods: guns and roses.If the relative price of guns falls,then the relative price of roses

A) must also fall.
B) must rise.
C) is unaffected.
D) could rise,fall,or remain unchanged.

Question 22

The price of silver increases from $10 per ounce to $15 per ounce while the price of gold increases from $300 per ounce to $310.In this situation,the price of silver relative to the price of gold has

A) fallen.
B) risen.
C) remained the same.
D) cannot be determined given the information provided.

Question 23

The prices typically studied in microeconomics are

A) relative prices.
B) absolute prices.
C) money prices.
D) retail prices.

Question 24

Suppose there are only two goods: lettuce and grapes.In California,a head of lettuce sells for 50¢ and a bunch of grapes sells for $1.In Nebraska,25¢ must be added to these absolute prices to cover transportation costs.How do these transportation costs affect the relative prices of lettuce and grapes?

A) The transportation costs do not affect the relative prices of lettuce and grapes.
B) The relative prices of lettuce and grapes are both higher when transportation costs are added.
C) The addition of transportation costs makes the relative price of grapes higher and the relative price of lettuce lower.
D) The transportation costs raise the relative price of lettuce but lower the relative price of grapes.

Question 25

The absolute price of a commodity is the amount of

A) other goods that must be sacrificed in order to purchase one unit of the commodity.
B) resources required to produce one unit of the commodity.
C) currency needed to purchase one unit of the commodity.
D) time and effort used to develop a market for the buying and selling of the commodity.

Question 26

Prices are commonly measured in "dollars per unit." In this context,the term dollar as used by the microeconomist

A) is another term for currency.
B) refers to a representative basket of goods in the economy.
C) represents the resources used in the production of the good being considered.
D) means that the price has been adjusted for inflation.

Question 27

Suppose that the due to technological innovations,the absolute price of a recordable CD declines by 25% while the absolute price of a recordable cassette tape declines by 10%.In this situation,the price of the CD relative to the price of a tape

A) falls.
B) rises.
C) remains the same.
D) changes unpredictably.

Question 28

Suppose there are only two goods: bread and wine.In Mexico,the absolute price of wine is 30 pesos per bottle.If the relative price of wine in terms of bread is 5 loaves per bottle,then the absolute price of bread is

A) 5 pesos per loaf.
B) 6 pesos per loaf.
C) 25 pesos per loaf.
D) 150 pesos per loaf.

Question 29

Suppose that because of inflation,the absolute price of a gallon of milk increases by 20% and the absolute price of a gallon of gasoline increases by 10%.In this situation,the price of milk relative to the price of gasoline

A) falls.
B) rises.
C) remains the same.
D) changes unpredictably.

Question 30

Suppose that there are only two goods in Japan,sushi and saki.The absolute price of a 100-gram plate of sushi is 200 yen,and the absolute price of a liter of saki is 100 yen.What is the relative price of saki in terms of sushi?

A) 100 grams per liter.
B) 200 grams per liter.
C) 50 grams per liter.
D) 400 grams per liter.

Question 31

If everyone had the same abilities,then no one could benefit from trade.

Question 32

When inflation causes the absolute prices of all commodities to rise,what happens to the relative prices of those commodities?

A) The relative prices also rise.
B) When absolute prices rise,the corresponding relative prices fall.
C) The relative prices are unaffected by changes in absolute prices.
D) No prediction can be made about changes in relative prices.

Question 33

If inflation causes the absolute prices of all commodities to double,then the relative prices

A) will also double.
B) will be halved.
C) will be unchanged.
D) may rise,fall,or remain unchanged.

Question 34

If good wines can be produced in Turkey at costs lower than in the wine exporting countries,but the local population drinks little wine,then Turkey should not produce wine.

Question 35

If each person specializes in his area of comparative advantage and then trades for the goods he wants to have,everyone will be made better off.

Question 36

Trading is beneficial whenever people differ in their abilities or differ in their tastes.

Question 37

Trade will never be beneficial when both parties have a comparative advantage in producing the same good.

Question 38

In order for there to be a gain from trade,there has to be a difference in either tastes or abilities.

Question 39

The difference between an absolute price and a relative price is that:

A) absolute prices are based on costs of production,relative prices are based on market exchange.
B) absolute prices are in terms of currency,relative prices are in terms of another good.
C) absolute prices are in terms of another good,relative prices are in terms of currency.
D) absolute prices never change,relative prices change with inflation.

Question 40

If no one in a community desires to watch television,then it would be a waste of resources for the community to produce television sets.

Question 41

Mexico and Japan

The following questions refer to the following table which shows the abilities of Mexico and Japan to produce food and cloth. Food and cloth are the only two commodities in the world and their production requires only labor. The amounts of labor required to produce one unit of each of these commodities in the two countries are shown in the table below.


-Refer to Mexico and Japan.What is the cost of producing 1 bolt of clothing in Mexico?

A) 6 hours of labor.
B) 2 bushels of food.
C) 3 bushels of imported Japanese food.
D) 4 bolts of imported Japanese cloth.

Question 42

Farmer Ken in Kentucky can raise either 80 pounds of tobacco or 40 bushels of cotton on an acre.Farmer Calvin in California can raise either 150 pounds of tobacco or 50 bushels of cotton on an acre.Which farmer can produce tobacco more efficiently?

A) Farmer Ken in Kentucky.
B) Farmer Calvin in California.
C) The two farmers are equally efficient at growing wheat.
D) More information is needed to determine comparative advantage.

Question 43

Mexico and Japan

The following questions refer to the following table which shows the abilities of Mexico and Japan to produce food and cloth. Food and cloth are the only two commodities in the world and their production requires only labor. The amounts of labor required to produce one unit of each of these commodities in the two countries are shown in the table below.


-Refer to Mexico and Japan.What is the cost of producing one unit of food in Japan?

A) 2 bolts of cloth per bushel.
B) 4/3 bolts of cloth per bushel.
C) 3/4 bolts of cloth per bushel.
D) none of the above.

Question 44

In 1 hour,Robinson Crusoe can either shoot 4 birds or catch 4 fish.A typical native on a nearby island can either shoot 5 birds or catch 10 fish in an hour's time.Which of the following is true according to the doctrine of comparative advantage?

A) Crusoe will be better off if he specializes in either activity and then trades with the natives.
B) The natives have a comparative advantage in both shooting birds and catching fish,so Crusoe cannot make himself better off by trading with the natives.
C) Crusoe should concentrate on shooting birds and then trade with the natives to obtain fish.
D) Crusoe should spend his time catching fish,and he should trade with the natives to obtain birds.

Question 45

A man can rewire a house in 12 hours and can panel a room in 15 hours,and his teenage son can rewire a house in 18 hours and can panel a room in 16 hours.Who is more efficient in rewiring a house,and who is more efficient in paneling a room?

A) The father is more efficient at both activities.
B) The father is more efficient at rewiring a house,and the son is more efficient at paneling a room.
C) The father is more efficient at paneling a room,and the son is more efficient at rewiring a house.
D) The two are equally efficient at both activities.

Question 46

In France,two qualities of wines are produced - table wine sold in bulk (bring your own bottle)and a higher quality of wine.Suppose that the English import all their wine from France.Then,we would we expect to find,on average that

A) the English drink more of the higher quality of wine,because transportation costs will lower the relative price of high-quality wine relative to table quality wine.
B) the English will drink more table quality wine,because transportation costs will raise the relative price of table quality wine to high-quality wine.
C) the French will drink more of the high quality wine because transportation costs reduce demand for wine in England.
D) the French will drink more of the high quality wine because the wine is produced there.

Question 47

Mexico and Japan

The following questions refer to the following table which shows the abilities of Mexico and Japan to produce food and cloth. Food and cloth are the only two commodities in the world and their production requires only labor. The amounts of labor required to produce one unit of each of these commodities in the two countries are shown in the table below.


-Refer to Mexico and Japan.What is the cost of producing cloth in Japan?

A) 1/2 bushel of food per bolt of cloth.
B) 3/4 bushel of food per bolt of cloth.
C) 4/3 bushels of food per bolt of cloth.
D) 3 bushels of food per bolt of cloth.

Question 48

Kelly has received a $50 check from her Grandparents to help with her expenses at college.She has narrowed her choices of how to spend the money to three: a new backpack,a dinner out with a friend,a fleece vest.Of these she likes the vest best and the backpack least.What is her cost of buying the fleece vest?

A) $50.
B) A new backpack.
C) A dinner out with a friend.
D) Nothing since the money was a gift to her.

Question 49

Mexico and Japan

The following questions refer to the following table which shows the abilities of Mexico and Japan to produce food and cloth. Food and cloth are the only two commodities in the world and their production requires only labor. The amounts of labor required to produce one unit of each of these commodities in the two countries are shown in the table below.


-Refer to Mexico and Japan.Which country is the more efficient food producer,and which country is the more efficient cloth producer?

A) Mexico is the more efficient food producer,and Japan is the more efficient cloth producer.
B) Japan is the more efficient food producer,and Mexico is the more efficient cloth producer.
C) Mexico is the more efficient producer of both goods.
D) Japan is the more efficient producer of both goods.

Question 50

Mexico and Japan

The following questions refer to the following table which shows the abilities of Mexico and Japan to produce food and cloth. Food and cloth are the only two commodities in the world and their production requires only labor. The amounts of labor required to produce one unit of each of these commodities in the two countries are shown in the table below.


-Refer to Mexico and Japan.Can trade in food and cloth benefit Mexico and Japan?

A) It cannot benefit Japan,because Japan cannot successfully compete with Mexico.
B) It cannot benefit Mexico,because Japan is too small to be an effective trading partner.
C) It can benefit both only if the people in Mexico and Japan have different tastes.
D) It can benefit both if Mexico specializes in food and Japan specializes in cloth.

Question 51

By and large,small countries tend to benefit the most from international trade because

A) their citizens tend to be the most different from the rest of the world.
B) they are unable to achieve self-sufficiency.
C) they can collect large amounts of tariff revenue from trading with larger countries.
D) their citizens are more likely to prefer the high-quality,capital-intensive goods available only from larger countries.

Question 52

Assume toys are produced using only labor and wood.Which of the following best describes the cost of producing toys?

A) The number of dollars that the laborer spends to purchase the wood.
B) The amounts of labor and wood used in the production process.
C) The alternative uses that could be found for the labor and wood.
D) The monetary value of the labor and wood used.

Question 53

Mexico and Japan

The following questions refer to the following table which shows the abilities of Mexico and Japan to produce food and cloth. Food and cloth are the only two commodities in the world and their production requires only labor. The amounts of labor required to produce one unit of each of these commodities in the two countries are shown in the table below.


-Refer to Mexico and Japan.Which of the following statements is true.

A) Mexico has a comparative advantage in production of food.
B) Japan has an absolute advantage in production of food.
C) Mexico has a comparative advantage in production of cloth.
D) Japan has an absolute advantage in production of Cloth.

Question 54

If people have the same abilities,then

A) they cannot gain from trade.
B) they can still gain from trade if they have different tastes.
C) they can still gain from trade as long as they specialize in different activities.
D) they can still gain from trade only if they are facing different absolute prices.

Question 55

Suppose there are only two goods: food and clothing.What does it mean for the U.S.to have a comparative advantage in food production?

A) The U.S.needs fewer resources to grow a given amount of food than do other nations.
B) The U.S.sacrifices less clothing production to grow a given amount of food than do other nations.
C) In the U.S.,food production needs fewer resources than does a comparable amount of clothing production.
D) In the U.S.,food production costs less than does clothing production.

Question 56

To be as well off as possible,a nation should produce

A) only those goods that its populace desires.
B) the good within its productive capabilities that commands the highest price in the world market.
C) the good that requires the fewest resources to produce.
D) whatever good it can produce at a cost lower than that incurred by other nations.

Question 57

If foreign professionals perform equal quality work more cheaply than American professionals it is because

A) American professionals have lower opportunity costs that foreign professionals.
B) foreign professionals have lower opportunity costs than American professionals.
C) foreign professionals have a higher cost of living than American professionals.
D) American professionals have a higher cost of living than foreign professionals.

Question 58

Suppose that in Paraguay,one of the poorest countries in the Americas,only two of the goods that are produced can compete in world markets,tea and DVD players.Given this success in exporting,Paraguay

A) should specialize only in DVD players since tea production is an old industry.
B) should specialize in the production of tea,since its people are probably too poor to buy DVD players.
C) should stop exporting both goods and produce more food products for its people.
D) is better off producing both goods in which it has a comparative advantage,relative to all other goods.

Question 59

Amanda can prepare a Thai meal for a group in 2 hours and can type a 10 page paper in the same amount of time.Morgan can prepare the meal in 3 hours.Morgan will be the more efficient typist as long as she can type the a paper in less than

A) 4 hours.
B) 3 hours.
C) 2 hours.
D) 1 hour.

Question 60

Mexico and Japan

The following questions refer to the following table which shows the abilities of Mexico and Japan to produce food and cloth. Food and cloth are the only two commodities in the world and their production requires only labor. The amounts of labor required to produce one unit of each of these commodities in the two countries are shown in the table below.



-Refer to Mexico and Japan.What is the cost of producing 1 bushel of food in Mexico?

A) 3 hours of labor.
B) 1/2 bolt of cloth.
C) 1/3 bushel of imported Japanese food.
D) 1/4 bolt of imported Japanese cloth.

Question 61

If a job requires two activities and there are two workers who can perform those activities,then which of the following statements regarding absolute advantage must be false?

A) One worker can have an absolute advantage in both activities.
B) One worker may not have an absolute advantage in neither activity.
C) Neither worker can have an absolute advantage in either activity.
D) Both workers can have an absolute advantage in both activities.

Question 62

North Dakota has 300 acres of farmland; each acre can produce either 20 bushels of wheat or 10 bushels of corn.Iowa has 200 acres of farmland; each acre can produce either 20 bushels of wheat or 30 bushels of corn.

Question 63

In a case where there are two possible work activities and two workers,which of the following is true regarding to comparative advantage?

A) One person can have a comparative advantage in both activities.
B) Both people can have a comparative advantage in both activities.
C) No one can have a comparative advantage in either activity.
D) Each person must have a comparative advantage in one activity,but not both.

Question 64

Suppose the price of coffee is $6 per pound.If this price is an absolute price,what is meant by the phrase "$6 per pound"? If this price is a relative price,what is meant by the phrase "$6 per pound"?

Question 65

The towns of Mattoon and Charleston can produce one of two goods: books and bagels.In Charleston factories,6 laborers can produce 100 books in an hour,while 12 laborers can produce 400 bagels in an hour.

Question 66

Suppose there are only two goods: guns and roses.In Los Angeles,the absolute price of roses is 50 dollars per dozen.If the relative price of roses in terms of guns is 1 guns per dozen roses,then the absolute price of guns is

A) 5 dollars per gun.
B) 2 cents per gun.
C) 50 dollars per gun.
D) 50 cents per gun.

Question 67

Suppose there are only two goods (bread and wine)and only two countries (England and Portugal).In England,the cost of producing 1 bottle of wine is 4 loaves of bread.What is the cost of producing 1 loaf of bread in England? Under what circumstances will England specialize in bread production and purchase its wine from Portugal? Explain.

Question 68

Laura can type a manuscript in two hours and her opportunity cost of one hour is $25.Spencer can type the same manuscript in one hour and his opportunity cost of one hour is $40.If Laura is charged with typing the manuscript,can both be made better off if Laura pays Spencer to type the manuscript instead? Explain.

Question 69

A boss can type 200 words per minute and sell 2000 units of the company's product in one day.His assistant can type 150 words per minute and sell 1000 units of the company's product in one day.Discuss who has absolute and comparative advantages in the "production" of typing and selling.

Question 70

Land in California is quite fertile and capable of growing large amounts of tobacco,while the land in New England is relatively rocky,of poorer quality,and capable of growing only smaller tobacco crops.Nevertheless,New England is a larger producer of tobacco than is California.Use the concepts of cost and comparative advantage to resolve this apparent contradiction.

Question 71

If people stand to produce at lower cost when specializing and producing in larger quantities

A) they cannot gain from trade because each one is just as potentially productive as another.
B) they cannot gain from trade because most people's wants can be easily satisfied with what they can produce themselves.
C) they cannot gain from trade if they have similar tastes.
D) they can gain from trade by specializing and increasing productivity.

Question 72

Will people,on average,tend to eat more grapefruit in Florida or in Illinois? In which state will the people,on average,tend to eat better quality grapefruit? Explain,using the concept of relative price.

Question 73

The absolute price of beef in Japan is $10.00 per pound and the absolute price of tuna is $5.00 per pound then the relative price of tuna in terms of beef is

A) one-half.
B) two.
C) fifteen.
D) fifty.