Deck 3: Interdependence and the Gains From Trade

Question 1

The production possibilities frontier shows the trade-offs that the producer faces but does not identify the choice the producer will make.

Answer 1

True

Question 2

In most countries today, many goods and services consumed are imported from abroad, and many goods and services produced are exported to foreign customers.

Answer 2

True

Question 3

Production possibilities frontiers cannot be used to illustrate tradeoffs.

Answer 3

False

Question 4

Henry can make a bird house in 3 hours and he can make a bird feeder in 1 hour. The opportunity cost to Henry of making a bird house is 1/3 bird feeder.

Question 5

If a person chooses self-sufficiency, then she can only consume what she produces.

Question 6

Suppose that in one hour Dewey can produce either 10 bushels of corn or 20 yards of cloth. Dewey's opportunity cost of producing one bushel of corn is 1/2 yard of cloth.

Question 7

For a country producing two goods, the opportunity cost of one good will be the inverse of the opportunity cost of the other good.

Question 8

Opportunity cost refers to how many inputs a producer requires to produce a good.

Question 9

A production possibilities frontier is a graph that shows the combination of outputs that an economy should produce.

Question 10

Opportunity cost measures the trade-off between two goods that each producer faces.

Question 11

Jake can complete an oil change in 45 minutes and he can write a poem in 90 minutes. Ming-la can complete an oil change in 30 minutes and she can write a poem in 90 minutes. Jake's opportunity cost of writing a poem is lower than Ming-la's opportunity cost of writing a poem.

Question 12

Assume a farmer has the ability to produce corn and/or beans. Whenever the farmer spends 1 hour less producing corn and 1 hour more producing beans, he reduces his output of corn by 2 bushels and raises his output of beans by 3 bushels. In view of these assumptions, the farmer's production possibilities frontier is bowed out.

Question 13

If Wrex can produce more math problems per hour and more book reports per hour than Maxine can, then Wrex cannot gain from trading math problems and book reports with Maxine.

Question 14

An assumption of the production possibilities frontier model is that technology is fixed.

Question 15

It is possible for the U.S. to gain from trade with Germany even if it takes U.S. workers fewer hours to produce every good than it takes German workers.

Question 16

Trade allows a country to consume outside its production possibilities frontier.

Question 17

An economy can produce at any point on or inside its production possibilities frontier, but it cannot produce at points outside its production possibilities frontier.

Question 18

Interdependence among individuals and interdependence among nations are both based on the gains from trade.

Question 19

To produce 100 bushels of wheat, Farmer A requires fewer inputs than does Farmer B. We can conclude that Farmer A has an absolute advantage over Farmer B in producing wheat.

Question 20

In one month, Moira can knit 2 sweaters or 4 scarves. In one month, Tori can knit 1 sweater or 3 scarves. Moira's opportunity cost of knitting scarves is lower than Tori's opportunity cost of knitting scarves.

Question 21

The gains from specialization and trade are based on absolute advantage.

Question 22

When there are two people and each is capable of producing two goods, it is possible for one person to have a comparative advantage over the other in both goods.

Question 23

Suppose Hank and Tony can both produce corn. If Hank's opportunity cost of producing a bushel of corn is 2 bushels of soybeans and Tony's opportunity cost of producing a bushel of corn is 3 bushels of soybeans, then Hank has the comparative advantage in the production of corn.

Question 24

It takes Ross 6 hours to produce a bushel of corn and 2 hours to wash and polish a car. It takes Courtney 6 hours to produce a bushel of corn and 1 hour to wash and polish a car. Courtney and Ross cannot gain from specialization and trade, since it takes each of them 6 hours to produce 1 bushel of corn.

Question 25

If one producer is able to produce a good at a lower opportunity cost than some other producer, then the producer with the lower opportunity cost is said to have an absolute advantage in the production of that good.

Question 26

It takes Anne 3 hours to make a pie and 4 hours to make a shirt. It takes Mary 2 hours to make a pie and 5 hours to make a shirt. Anne should specialize in making shirts and Mary should specialize in making pies, and they should trade.

Question 27

Harry is a computer company executive, earning $200 per hour managing the company and promoting its products. His daughter Quinn is a high school student, earning $6 per hour helping her grandmother on the farm. Harry's computer is broken. He can repair it himself in one hour. Quinn can repair it in 10 hours. Harry's opportunity cost of repairing the computer is lower than Quinn's.

Question 28

The principle of comparative advantage states that, regardless of the price at which trade takes place, everyone will benefit from trade if they specialize in the production of the good for which they have a comparative advantage.

Question 29

If a country has the comparative advantage in producing a product, then that country must also have the absolute advantage in producing that product.

Question 30

Two countries can achieve gains from trade even if one country has an absolute advantage in the production of both goods.

Question 31

Fred trades 2 tomatoes to Barney in exchange for 1 pumpkin. Fred and Barney both gain from the exchange. We can conclude that, for Barney, the opportunity cost of producing 1 pumpkin is greater than 2 tomatoes.

Question 32

In an economy consisting of two people producing two goods, it is possible for one person to have the absolute advantage and the comparative advantage in both goods.

Question 33

If one producer has the absolute advantage in the production of all goods, then that same producer will have the comparative advantage in the production of all goods as well.

Question 34

Timmy can edit 2 pages in one minute and he can type 80 words in one minute. Olivia can edit 1 page in one minute and she can type 100 words in one minute. Timmy has an absolute advantage and a comparative advantage in editing, while Olivia has an absolute advantage and a comparative advantage in typing.

Question 35

In one month, Moira can knit 2 sweaters or 4 scarves. In one month, Tori can knit 1 sweater or 3 scarves. Together, they could produce more output in total if Moira knits only sweaters and Tori knits only scarves.

Question 36

Zora can produce 4 quilts in a week and she can produce 1 corporate website in a week. Lou can produce 9 quilts in a week and he can produce 2 corporate websites in a week. Zora has the comparative advantage in quilts and the absolute advantage in neither good, while Lou has the comparative advantage in corporate websites and the absolute advantage in both goods.

Question 37

Differences in opportunity cost allow for gains from trade.

Question 38

Trade can benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage.

Question 39

Unless two people who are producing two goods have exactly the same opportunity costs, then one person will have a comparative advantage in one good, and the other person will have a comparative advantage in the other good.

Question 40

Ellie and Brendan both produce apple pies and vanilla ice cream. If Ellie's opportunity cost of one apple pie is 1/2 gallon of ice cream and Brendan's opportunity cost of one apple pie is 1/4 gallon of ice cream, Ellie has a comparative advantage in the production of ice cream.

Question 41

​The production possibilities frontier (PPF) depicts the combinations of goods that provides society with the maximum possible benefit.

Question 42

International trade may make some individuals in a nation better off, while other individuals are made worse off.

Question 43

For both parties to gain from trade, the price at which they trade must lie exactly in the middle of the two opportunity costs.

Question 44

Adam Smith was the author of the 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations.

Question 45

Goods produced abroad and sold domestically are called exports and goods produced domestically and sold abroad are called imports.

Question 46

Specialization and trade can make everyone better off if a person can obtain goods at prices that are less than that person's opportunity cost.

Question 47

As long as two people have different opportunity costs, each can gain from trade with the other, since trade allows each person to obtain a good at a price lower than his or her opportunity cost.

Question 48

David Ricardo was the author of the 1817 book Principles of Political Economy and Taxation.

Question 49

Some countries win in international trade, while other countries lose.

Question 50

When each person specializes in producing the good in which he or she has a comparative advantage, each person can gain from trade but total production in the economy is unchanged.

Question 51

Trade allows all countries to achieve greater prosperity.

Question 52

Ellie and Brendan both produce apple pies and vanilla ice cream. If Ellie's opportunity cost of one apple pie is 1/2 gallon of ice cream and Brendan's opportunity cost of one apple pie is 1/4 gallon of ice cream, a mutually advantageous trade can be struck at a price of one apple pie for 1/3 gallon of ice cream.

Question 53

For both parties to gain from trade, the price at which they trade must lie between the two opportunity costs.

Question 54

If a country has a lower opportunity cost than its potential trading partner, the country should decide to be self-sufficient.

Question 55

If US workers can produce everything in less time than Mexican workers, it is not possible for the US to gain from trade with Mexico.

Question 56

Adam Smith wrote that a person should never attempt to make at home what it will cost him more to make than to buy.

Question 57

For international trade to benefit a country, it must benefit all citizens of that country.

Question 58

International trade can make some individuals within a country worse off, even as it makes the country as a whole better off.

Question 59

Trade allows a person to obtain goods at prices that are less than that person's opportunity cost because each person specializes in the activity for which he or she has the lower opportunity cost.

Question 60

Adam Smith developed the theory of comparative advantage as we know it today.

Question 61

​Whenever a country has an absolute advantage in the production of a good, that implies that the country should specialize in the production of that good.

Question 62

Suppose the United States has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that

A)the United States should produce more pork than what it requires and export some of it to Mexico.
B)the United States should produce a moderate quantity of pork and import the remainder of what it requires from Mexico.
C)the United States should refrain altogether from producing pork and import all of what it requires from Mexico.
D)Mexico has nothing to gain from importing United States pork.

Question 63

By definition, imports are

A)people who work in foreign countries.
B)goods in which a country has an absolute advantage.
C)limits placed on the quantity of goods leaving a country.
D)goods produced abroad and sold domestically.

Question 64

When a country has a comparative advantage in producing a certain good,

A)the country should import that good.
B)the country should produce just enough of that good for its own consumption.
C)the country's opportunity cost of that good is high relative to other countries' opportunity costs of that same good.
D)None of the above is correct.

Question 65

By definition, exports are

A)limits placed on the quantity of goods brought into a country.
B)goods in which a country has an absolute advantage.
C)people who work in foreign countries.
D)goods produced domestically and sold abroad.

Question 66

​If a country has a higher opportunity cost to produce a good, that means that this country can never possess a comparative advantage in the production of any good.

Question 67

A country that currently does not trade with other countries could benefit by

A)restricting imports and promoting exports.
B)promoting imports and restricting exports.
C)restricting both imports and exports.
D)not restricting trade.

Question 68

​When it is said that trade between nations can make both sides of the trade better off, this means that all citizens in each nation will benefit.

Question 69

​Whenever a nation is producing on its PPF, that nation will be using all of its available resources.

Question 70

Goods produced abroad and sold domestically are called

A)exports.
B)imports.
C)exchange rates.
D)opportunity costs.

Question 71

Trade can only benefit a nation if that nation has an absolute advantage in the production of that good.​

Question 72

Which of the following is not an example of the principle that trade can make everyone better off?

A)Americans buy tube socks from China.
B)Residents of Maine drink orange juice from Florida.
C)A homeowner hires the kid next door to mow the lawn.
D)All of the above are examples of the principle that trade can make everyone better off.

Question 73

Belarus has a comparative advantage in the production of linen, but Russia has an absolute advantage in the production of linen. If these two countries decide to trade,

A)Belarus should export linen to Russia.
B)Russia should export linen to Belarus.
C)trading linen would provide no net advantage to either country.
D)Without additional information about opportunity costs, this question cannot be answered.

Question 74

Which of the following would not result from all countries specializing according to the principle of comparative advantage?

A)The size of the economic pie would increase.
B)Worldwide production of goods and services would increase.
C)The well-being of citizens in each country would be enhanced.
D)Each country's production possibilities frontier would shift inward.

Question 75

​A country can have a comparative advantage in the production of a good, even if it does not have an absolute advantage in the production of that good.

Question 76

Trade between countries

A)allows each country to consume at a point outside its production possibilities frontier.
B)limits a country's ability to produce goods and services on its own.
C)must benefit both countries equally; otherwise, trade is not mutually beneficial.
D)can best be understood by examining the countries' absolute advantages.

Question 77

​Trade does not benefit a nation if that nation has a comparative advantage in the production of that good.

Question 78

​Trade between nations is based on absolute advantage, which occurs when a country has a lower opportunity cost of producing a good.

Question 79

Suppose that a worker in Boatland can produce either 5 units of wheat or 25 units of fish per year, and a worker in Farmland can produce either 25 units of wheat or 5 units of fish per year. There are 10 workers in each country. Political pressure from the fish lobby in Farmland and from the wheat lobby in Boatland has prevented trade between the two countries on the grounds that cheap imports would kill the fish industry in Farmland and the wheat industry in Boatland. As a result, Boatland produces and consumes 25 units of wheat and 125 units of fish per year while Farmland produces and consumes 125 units of wheat and 25 units of fish per year. If the political pressure were overcome and trade were to occur, each country would completely specialize in the product in which it has a comparative advantage. If trade were to occur, the combined output of the two countries would increase by

A)25 units of wheat and 25 units of fish.
B)50 units of wheat and 50 units of fish.
C)75 units of wheat and 75 units of fish.
D)100 units of wheat and 100 units of fish.

Question 80

​The production possibilities frontier (PPF) illustrates the combinations of goods that society can consume when trading with other producers.