Deck 2: Some Tools of the Economist

Question 1

Land used to grow corn could also be used to grow soybeans. Which of the following is true when the farmer plants soybeans and the market price of corn rises?

A) The opportunity cost of producing soybeans decreases.
B) The opportunity cost of producing soybeans increases.
C) There will be no change in the opportunity cost of producing soybeans.
D) The opportunity cost of producing corn increases.

Answer 1

The opportunity cost of producing soybeans increases.

Question 2

Opportunity cost is defined

A) only in terms of money spent
B) as the value of all alternatives not chosen
C) as the value of the best alternative not chosen
D) as the difference between the benefits from a choice and the benefits from the next best alternative
E) as the difference between the benefits from a choice and the costs of that choice

Answer 2

as the value of the best alternative not chosen

Question 3

Air travel from New York to Miami costs $300 and takes 6 hours. A bus ticket between the cities costs $150 and takes 56 hours. Other things constant, the minimum value of one's time that would induce a rational individual to fly rather than drive would be

A) $1 per hour.
B) $3 per hour.
C) $5 per hour.
D) $50 per hour.

Answer 3

$3 per hour.

Question 4

A ticket to a concert costs $45. You have a ticket and can resell it for $75. Your opportunity cost of actually attending the concert is

A) $30.
B) $45.
C) $75.
D) $120.

Question 5

The opportunity cost of building a park in your hometown would be the

A) money cost of constructing the park.
B) highest valued bundle of other goods and services that must be forgone because of the park construction.
C) necessary increase in tax revenues to finance the construction.
D) amount of time spent in leisure activities in the park once it is constructed.

Question 6

Land used to grow alfalfa could also be used to grow hay. Which of the following is true when the farmer plants hay and the market price of alfalfa rises?

A) The opportunity cost of producing hay decreases.
B) The opportunity cost of producing hay increases.
C) There will be no change in the opportunity cost of producing hay.
D) The opportunity cost of producing alfalfa increases.

Question 7

Recent legislation provides parents with a substantial reduction in their personal income tax liability for each child that they have. The economic way of thinking indicates that legislation of this type will

A) make it more costly for parents to provide for their children.
B) reduce the value of children to their parents and, therefore, lead to a reduction in the birth rate.
C) reduce the after-tax cost of raising children and, therefore, increase the birth rate.
D) exert no impact on either the cost of raising children or the birth rate since having children is a not an economic activity.

Question 8

Which of the following most accurately reflects the opportunity cost to a pharmacist who drives a taxi?

A) the dollars spent on his previously acquired education in pharmacy
B) the revenue derived from operating the cab
C) zero if the pharmacist received his education on a scholarship that paid his full tuition
D) the value of the pharmacist's time in its highest valued use other than driving a cab

Question 9

Which of the following would be most likely to increase your opportunity cost of attending college?

A) a recession in the economy that made finding a job more difficult
B) receiving a very attractive offer to start a job today that would permit you to earn about 50 percent more than you expected to make after graduation
C) the retirement of your favorite professor under whom you hoped to study during the next semester
D) information indicating that salaries were declining and that there were very few openings for college graduates in your field

Question 10

The opportunity cost of an activity

A) depends on the individual's subjective values and opinions
B) is the same for everyone
C) must be calculated and known before undertaking that activity
D) is irrelevant to decision making
E) is not influenced by time costs

Question 11

Statistical data provided by the U.S. Department of Transportation shows that the median income of individuals traveling on the nation's bus systems is $18,000 compared to $65,000 for those who normally travel by air. This finding is best explained by which of the following statements?

A) Persons with high income are more likely to fly because the opportunity cost of their time is generally higher than those with lesser income.
B) Traditionally, lower income groups prefer slower methods of transportation.
C) Wealthy individuals own stock in the airlines and, therefore, receive preferential treatment.
D) Low-income groups are generally located near bus stations; wealthy groups congregate around airports.

Question 12

Which of the following activities describes the opportunity cost of attending an economics class?

A) the value of the time it takes to get to campus every day
B) the cost of the gasoline needed to drive a car to campus
C) the value of the highest valued alternative that must be forgone because of attending the class
D) transportation costs plus the cost of tuition and textbooks for the course

Question 13

For most students attending state universities, the largest cost component of going to college is

A) the cost of books and supplies.
B) the cost of room and board.
C) tuition.
D) the opportunity cost in terms of forgone current income from the time spent attending college.

Question 14

Because of a late night out with friends, Ayana decided to sleep in rather than attend her 8 a.m. economics class. According to economic analysis, her choice was

A) irrational, because economic analysis suggests you should always attend classes that you have already paid for.
B) irrational, because oversleeping is not in Ayana's self-interest.
C) rational only if Ayana has not missed any other classes.
D) rational if Ayana values sleep more highly than the benefit she expects to receive from attending the class.

Question 15

Hutch Technology makes computer monitors, which sell for $500 each. What is the opportunity cost of producing ten monitors?

A) $5,000
B) the other goods that could be produced with the resources that produce the ten monitors
C) the profits that Hutch earns when it sells the ten monitors
D) the profits that Hutch loses if it does not produce the monitors
E) All of the above are correct.

Question 16

Retired persons travel by bus and automobile more frequently than do business executives, who more commonly use air travel. An economic explanation for this would be that

A) business executives have more time to travel.
B) it is more important for retired persons to save time.
C) business executives value their time more highly.
D) retired persons have more money than do business executives.

Question 17

Based on the idea of opportunity cost, which of the following students would be most likely to drop out of college before completing their degree?

A) a senior mathematics major with a solid B average
B) a junior physical therapy student who has just read about the fantastic job offers available to students with degrees in her area
C) a star college football player in his junior year that just received a $5 million offer from a professional team
D) a junior economics major who wants to attend graduate school

Question 18

The opportunity cost of an action is

A) objective and will be the same for all individuals.
B) a measure of the undesirable aspects involved in the action.
C) applicable only to choices involving material goods like commodities.
D) the highest valued alternative forgone as the result of choosing an option.

Question 19

Suppose an airline ticket from Portland to Orlando costs $760. A bus ticket costs $360. Traveling by plane will take 6 hours, compared with 26 hours by bus. Other things constant, the minimum value of one's time that would induce a rational individual to fly rather than drive would be

A) $18 per hour.
B) $20 per hour.
C) $38 per hour.
D) $44 per hour.

Question 20

The wages of house painters will tend to rise when

A) more people recognize that house painters have very low incomes.
B) the alternative earning opportunities of house painters improve.
C) house painters can no longer find good paying alternatives for their labor.
D) unemployment in the economy is high and there are few alternative jobs available for house painters.

Question 21

Beginning in the early 1990s, private landowners in Zimbabwe have started fencing in large areas of land that contain black rhinos, which were on the verge of extinction. These private owners charge fees for a stay at the lodges on the property (eco-tourism) and also sell hunting safaris and photo safaris. As a result,

A) the population of black rhinos has fallen substantially.
B) the population of black rhinos has increased.
C) many black rhinos are being poached.
D) the incomes of residents in Zimbabwe has fallen substantially.

Question 22

Which of the following is true of private ownership?

A) Private ownership links responsibility with the right of control.
B) Private owners have little incentive to conserve natural resources for the future.
C) Private owners have little incentive to develop and use their assets in ways others value.
D) Private owners can do anything they want with the things they own regardless of the damage it does to the property of others.

Question 23

Melanie has a choice of driving or flying from Durham, North Carolina to Knoxville, Tennessee for a one-day business trip. If she travels by air, she will be able to work seven hours in Knoxville, while if she drives, she will only have time to work four hours once there. Her expected income from each hour of work in Knoxville is $40. If Melanie a rational decision maker, she will chose to fly if and only if the price differential (air cost minus driving cost) is less than

A) $40.
B) $120.
C) $160.
D) $280.

Question 24

When private ownership of a resource is clearly defined and enforced, the private owner

A) has little incentive to consider the wishes of others when deciding how to employ the resource.
B) has little incentive to use the resource wisely.
C) has a strong incentive to consume the resource during the period rather than conserving it for the future.
D) has a strong incentive to use the resource wisely.

Question 25

Private property rights involve

A) the right to exclusive use of the property.
B) legal protection against those who would seek to use or abuse the property without the owner's permission.
C) the right to transfer, sell, exchange, or mortgage the property.
D) all of the above.

Question 26

Which of the following is NOT true of opportunity cost?

A) Opportunity costs are subjective because they depend upon how the decision-maker values his or her options.
B) Opportunity costs are only the monetary costs of lost options.
C) Opportunity costs are the highest-valued alternative sacrificed in order to choose an option.
D) Only the decision-maker can determine his or her opportunity costs for any particular action.

Question 27

Given your knowledge of the incentives created by private ownership, which of the following would you expect to be false?

A) People will take better care of their own personal automobile than they will a rental car.
B) People will take better care of a home they own than they will of a home they rent.
C) Property owned privately will tend to be better conserved and kept than public property or property owned in common.
D) People will be more likely to throw trash out onto their own lawn than they will be to throw it out onto the side of an interstate highway.

Question 28

When private ownership rights are well-defined and enforced, owners of physical assets and resources

A) have no incentive to consider the desires of others.
B) incur the opportunity cost of ignoring the wishes of others.
C) are not responsible if the use of their assets impose harm on others.
D) have little incentive to take care of their assets.

Question 29

In Zimbabwe and Botswana, elephants can be owned by local tribes and trade in ivory is legal, while in countries such as Kenya, it is illegal to trade in ivory and elephants cannot be privately owned but are protected by the government. Which of the following is true regarding the change in the elephant populations since 1979 in these countries?

A) In Zimbabwe and Botswana, elephants are near the verge of extinction, while in Kenya, the population of elephants is growing rapidly.
B) There has been a similar decline in the population of elephants in all of these countries.
C) There has been a similar increase in the population of elephants in all of these countries.
D) In Zimbabwe and Botswana, elephant populations have more than doubled, while in Kenya, the population of elephants has fallen to less than one-third of its previous level.

Question 30

The student government associations at several universities have experimented with purchasing bicycles to leave around campus for everyone's use. Anyone who needs the bike can use it, and they are not allowed to lock the bike up or take it home, but rather must leave it on campus for someone else to use. Economic theory would predict that

A) students will take better care of these commonly owned bicycles than they do their own bicycles.
B) students will take equally as good care of these commonly owned bicycles as they do their own bicycles.
C) students will not take as good of care of these commonly owned bicycles as they do their own bicycles.
D) because universities have a lot of money, these bikes will be better maintained than the ones owned privately by college students who tend to have little money.

Question 31

Which of the following is a private owner prohibited from doing?

A) selling the property to another person
B) erecting a fence designed to keep others from using the property
C) painting the property a color that others do not like
D) using the property in a manner that invades or infringes on the property of another

Question 32

In Africa, which of the following policies has been most successful at increasing elephant populations?

A) Banning the ivory trade by making the buying and selling of ivory illegal.
B) Making elephants the common property of the people of the country through government ownership and control and making the killing of elephants illegal
C) Allowing private ownership of elephants and making the ivory trade legal
D) When used together, the policies in a and b have been more successful than the policy in c.

Question 33

Maurice can drive or fly from Jacksonville, Florida to Atlanda, Georgia, for a one-day business trip. If he drives, he will be able to work three hours once he arrives in Atlanta, whereas traveling by plane will enable him to work eight hours. His expected income from each hour of work in Atlanta is $30. If Maurice is a rational decision maker, he will fly if and only if the price differential (air cost minus driving cost) is less than

A) $30.
B) $90.
C) $150.
D) $240.

Question 34

The government enforces property rights by

A) requiring property owners to pay property taxes.
B) providing police and courts.
C) forcing people to own property.
D) providing public parks and recreation facilities.

Question 35

Todd owns a truck that he values at $2,000. Susan, who does a lot of hauling, values the truck at $6,000. If these two are allowed to negotiate, which of the following will most likely occur?

A) Todd will sell the truck for $1,500.
B) Susan will buy the truck for $7,000.
C) The truck will be sold at a price greater than $2,000 but less than $6,000, and both parties will benefit.
D) Susan will benefit more than Todd if the truck is sold.

Question 36

Which of the following is true regarding private ownership?

A) Relative to common ownership, private ownership generally leads to less conservation of resources.
B) With private ownership, owners are held accountable for using their resources in a manner that harms the resources of others.
C) Private ownership generally gives the owner little incentive to find ways to use the resource wisely.
D) With private ownership, resource owners have little incentive to consider the preferences of others when deciding how to employ a resource.

Question 37

Suppose that in Australia, the government allows private ownership of chickens but not of cows. If the people of Australia permanently increase their desire to purchase more chicken and beef, in the long run, we would expect

A) the population of chickens to rise and the population of cows to fall.
B) the population of cows to rise and the population of chickens to fall.
C) the populations of both chickens and cows to increase.
D) both chickens and cows to become extinct in Australia unless the government places the animals on the endangered species list.

Question 38

When property rights are clearly defined and enforced, private owners will

A) use their property for selfish ends because they have little or no incentive to consider the desires of others.
B) develop and direct their property toward uses that others value highly because the market will generally reward them for doing so.
C) have little or no incentive to take care of their property or conserve it for the future.
D) be unable to derive personal gain if they are sensitive to the desires of others when deciding how to use their property.

Question 39

Because private owners are held responsible for damages their property causes to the property of others, private owners have

A) a strong incentive to take steps to reduce the chance that they will harm the property of others.
B) a strong incentive to use their property now rather than conserving it for the future.
C) little incentive to take good care of the property.
D) little incentive to consider the harm their property may do to the property of others.

Question 40

The number of cattle slaughtered every year for meat far exceeds the number of elephants slaughtered every year for their ivory. Despite this, cows can be found everywhere while elephants are on the verge of extinction in some countries. Which of the following best explains this difference?

A) Cows can be privately owned while in many countries elephants can not.
B) The demand for ivory far exceeds the demand for beef.
C) Animals slaughtered for their meat are generally better conserved by humans than animals slaughtered for nonfood uses.
D) People tend to protest more every year to prevent cow extinction than they do for elephant extinction.

Question 41

The law of comparative advantage applies to exchange between

A) individuals.
B) regions.
C) nations.
D) all of the above.

Question 42

The law of comparative advantage implies that a nation, individual, or region should produce those economic goods for which it

A) has an absolute advantage.
B) is a low opportunity cost producer.
C) is a high opportunity cost producer.
D) pays the highest wage rate.

Question 43

Which of the following is true of exchange?

A) Exchange is a zero sum activity; if one party to an exchange gains, the other must lose an equal amount.
B) The exchange value of a good is determined by the cost of the resources required to produce the good.
C) The total output trading partners are able to produce is not influenced by whether the partners trade with each other.
D) Exchange permits trading partners to expand their total output of goods and services as the result of greater specialization in areas where each has a comparative advantage.

Question 44

Ashley is an attorney and also an excellent typist. She can type 120 words per minute, but she charges attorney fees at $100 per hour. Benjamin would like some typing work but can only type 60 words per minute. According to the law of comparative advantage, Ashley should hire Benjamin to do her typing if and only if his wage rate is less than

A) $10 per hour.
B) $50 per hour.
C) $60 per hour.
D) $100 per hour.

Question 45

Michael takes 10 minutes to iron a shirt and 20 minutes to type a paper. Aiden takes 10 minutes to iron a shirt and 30 minutes to type a paper. Which of the following statements is correct?

A) Aiden has a comparative advantage in ironing.
B) Aiden has a comparative advantage in typing.
C) Michael has a comparative advantage in ironing.
D) Neither can gain from specialization and exchange.

Question 46

Jayden can produce 10 pens or 20 pencils in one hour while Alexander can produce 15 pens or 5 pencils in one hour. Which of the following statements is correct?

A) Alexander has a comparative advantage over Jayden in the production of pencils
B) Alexander has a comparative advantage over Jayden in the production of pens
C) Jayden has a comparative advantage over Alexander in the production of pens
D) Alexander and Jayden cannot gain from specialization and exchange.

Question 47

Suppose a country attempts to be self-sufficient and doesn't trade with any other countries.  From an economic perspective, citizens of this nation can be expected to

A) gain materially from this policy because they can consume more goods over time than if they engaged in trade with foreigners.
B) produce less total value than they could if they specialized and engaged in trade with other nations.
C) gain from more rapid growth since home markets are reserved for home producers.
D) be just as well off without trade since the value of what is sent to other nations in trade just equals the value of what is received in trade.

Question 48

The economic principle that states that individuals or nations can gain by specializing in the production of goods that they produce cheaply and exchanging for other desired goods that they could only produce at a higher cost is

A) the law of absolute advantage.
B) the law of comparative advantage.
C) the law of production possibilities.
D) the exchange maximum principle.

Question 49

The law of comparative advantage explains why

A) specialization and exchange will make it possible for trading partners to expand their combined output.
B) there will be an inverse relationship between the price of a product and the quantity of it that will be demanded.
C) larger firms will have lower per unit costs than smaller firms.
D) an increase in the price of a good will lead to an expansion in the quantity supplied by business firms.

Question 50

The notion that specialization in goods that one can produce at a low opportunity cost will make it possible for trading partners to produce a larger joint output is called

A) the law of absolute advantage.
B) the law of comparative advantage.
C) the law of production possibilities.
D) the exchange maximum principle.

Question 51

According to the law of comparative advantage,

A) individuals and nations gain when they specialize in producing those goods they consume.
B) individuals and nations gain when they specialize in producing goods they can produce at a high opportunity cost and can exchange for other desired goods they can produce cheaply.
C) individuals and nations gain when they specialize in producing those items for which they are the low opportunity cost producers and exchange for other desired goods they can't produce as cheaply.
D) all of the above are true.

Question 52

Economic analysis suggests that gains from specialization and exchange

A) will not be realized unless a central planning authority requires that all goods be produced by the low opportunity cost supplier.
B) will be realized if individuals are allowed to pursue goals that are in their own self-interest.
C) will not be realized unless business firms employ economists when making decisions about the proper combination of resources to utilize in the production process.
D) will be realized if individuals place the public interest above the pursuit of their own self-interest.

Question 53

Which of the following is an implication of the law of comparative advantage?

A) Countries with small amounts of labor relative to capital should specialize in producing labor-intensive commodities.
B) Since workers in high-income countries utilize larger amounts of capital than workers in less developed nations, trade between capital-rich and capital-poor nations results in the exploitation of labor in the less developed countries.
C) Countries that are high cost producers of agricultural products should trade those products for goods they can produce only at a low opportunity cost.
D) Countries that are low opportunity cost producers of timber products should trade those products for goods they can produce only at a high opportunity cost.

Question 54

According to the law of comparative advantage, both individuals and nations will be able to produce a larger joint output if each productive activity is undertaken by

A) the high opportunity cost producer.
B) the low opportunity cost producer.
C) the producer who is able to hire workers at the lowest wage.
D) the party that can complete the productive activity most rapidly.

Question 55

Which of the following appropriately applies the law of comparative advantage?

A) Countries with small amounts of labor relative to capital should specialize in producing labor-intensive commodities.
B) Since Mexican labor is cheaper than American labor, trade between the countries results in exploitation of American workers.
C) Since workers in countries such as the United States utilize larger amounts of capital than workers in less developed nations, trade between capital-rich and capital-poor nations results in the exploitation of labor in the less developed countries.
D) Countries that are low cost producers of agricultural products should trade those products for goods they can produce only at a high opportunity cost.

Question 56

The law of comparative advantage suggests that

A) curtailing U.S. trade with other countries would make U.S. consumers better off.
B) everyone would be better off if they were self-sufficient.
C) countries will tend to import commodities that they can produce at a relatively low opportunity cost.
D) countries will tend to import commodities that they can produce at a relatively high opportunity cost.

Question 57

The most important source of gain from the division of labor is

A) the repeal of the law of comparative advantage.
B) the reduction in work effort because incentives are adversely affected.
C) the increase in the number of jobs since more labor is used to produce goods.
D) the benefits that result from specialization, adoption of mass production techniques, and exchange.

Question 58

Opportunity costs differ among nations primarily because

A) nations employ different currencies.
B) nations have different amounts of land, labor skills, capital, and technology.
C) nations have different religious, political, and economic institutions.
D) the work-leisure preferences of people vary considerably from one nation to another.

Question 59

Given freedom of movement for both goods and resources, if Florida producers specialize in oranges and Georgia producers specialize in peaches, it would be reasonable to conclude that

A) the opportunity cost of growing oranges is higher in Florida than in Georgia.
B) Georgia has a comparative advantage in producing oranges.
C) Florida has a comparative advantage in producing oranges.
D) total output will be expanded when Georgia allocates more resources to producing oranges and Florida allocates more resources to producing peaches.

Question 60

When private ownership rights are well-defined and enforced, owners

A) can ignore the wishes of others, without bearing the cost.
B) have little incentive to take care of things.
C) can do anything they want with their property.
D) can be held accountable for damage to others through misuse of their property.

Question 61

Use the production possibilities data below to answer the following question(s). Table 2-3
Refer to Table 2-3. The opportunity cost of 1 pound of meat for the rancher is

A) 4 hours of labor.
B) 5 hours of labor.
C) 4/5 pounds of potatoes.
D) 5/4 pounds of potatoes.

Question 62

Use the production possibilities data below to answer the following question(s). Table 2-3
Refer to Table 2-3. The opportunity cost of 1 pound of potatoes for the farmer is

A) 8 hours of labor.
B) 2 hours of labor.
C) 4 pounds of meat.
D) 1/4 pound of meat.

Question 63

Use the production possibilities data below for Honduras and Nicaragua to answer the following question(s). Table 2-2
Refer to Table 2-2. Which of the following is correct?

A) Honduras has the comparative advantage in both goods.
B) Nicaragua has the comparative advantage in oranges.
C) Honduras has the comparative advantage in oranges.
D) It would be impossible for Honduras and Nicaragua to gain from trade.

Question 64

Use the table below to choose the correct answer. The table outlines the production possibilities of Robinson Crusoe and Joe Friday. If Crusoe and Friday want to maximize their consumption possibilities,

A) Crusoe should specialize in producing good X and Friday in producing good Y, but no trade should be allowed.
B) Crusoe should specialize in producing good X and Friday in producing good Y; trade should occur to maximize joint consumption.
C) Crusoe should specialize in producing good Y and Friday in producing good X; trade should occur to maximize joint consumption.
D) Not enough information is provided to conclusively answer this question.

Question 65

Use the production possibilities data below for Honduras and Nicaragua to answer the following question(s). Table 2-2
Refer to Table 2-2. Which of the following would be a mutually agreeable rate of exchange?

A) Nicaragua trades one orange to Honduras for every one apple.
B) Nicaragua trades one orange to Honduras for every two apples.
C) Nicaragua trades one orange to Honduras for every three apples.
D) Nicaragua trades one orange to Honduras for every four apples.

Question 66

Use the production possibilities data below for Austria and Italy to answer the following question(s). Table 2-1
Refer to Table 2-1. Which of the following is true?

A) Austria has the comparative advantage in both goods.
B) Austria has the comparative advantage in food.
C) Italy has the comparative advantage in food.
D) It would be impossible for Austria and Italy to gain from trade.

Question 67

Specialization in production is beneficial because

A) it allows everyone to have a job that they like.
B) it permits people to expand production and achieve rates of output that would otherwise be unattainable.
C) it allows everyone to be self-sufficient.
D) it eliminates the need for the division of labor.

Question 68

Use the production possibilities data below for Austria and Italy to answer the following question(s). Table 2-1
Refer to Table 2-1. Which of the following would be a mutually agreeable rate of exchange?

A) 1 Food = 1 Clothing
B) 1 Food = 2 Clothing
C) 1 Food = 3 Clothing
D) No exchange rate would be mutually agreeable.

Question 69

Which of the following most accurately states the economic significance of exchange?

A) Physical goods have value because they exist; exchange can neither increase nor decrease their value.
B) Exchange creates value by permitting trading partners to expand total output as the result of specialization in areas where they have a comparative advantage.
C) Exchange creates value by moving goods from people who value the goods less to people who value the goods more.
D) Both b and c are true.

Question 70

Use the production possibilities data below to answer the following question(s). Table 2-3
Refer to Table 2-3. The opportunity cost of 1 pound of meat for the farmer is

A) 1/4 hour of labor.
B) 4 hours of labor.
C) 4 pounds of potatoes.
D) 1/4 pound of potatoes.

Question 71

Use the production possibilities data below to answer the following question(s). Table 2-3
Refer to Table 2-3. The rancher has a comparative advantage in

A) neither good, and the farmer has a comparative advantage in both goods.
B) both goods, and the farmer has a comparative advantage in neither good.
C) potatoes, and the farmer has a comparative advantage in meat.
D) meat, and the farmer has a comparative advantage in potatoes.

Question 72

Which of the following statements about exchange is true?

A) If everyone starts off with the same quantities of each good, it would be impossible to realize gains from trade.
B) Exchange tends to move each good toward those individuals who value the good more highly.
C) Exchange always results in one party being made better off and the other being made worse off.
D) For trade to occur, everyone must start off with the same value of the good that is traded.

Question 73

Use the production possibilities data below to answer the following question(s). Table 2-3
Refer to Table 2-3. The farmer and the rancher both could benefit if the farmer were to specialize in

A) meat and the rancher were to specialize in potatoes.
B) potatoes and the rancher were to specialize in meat.
C) neither good and the rancher were to specialize in both goods.
D) none of the above; they cannot both benefit by specialization and trade.

Question 74

Which of the following is true of exchange?

A) The value of a good is determined by the cost of the resources required to produce the good.
B) Exchange makes it possible for trading partners to produce more goods through division of labor and adoption of mass production methods.
C) Nothing new is created by exchange; if one party to an exchange gains, the other must lose an equal amount.
D) Both a and b are true.

Question 75

Use the production possibilities data below for Honduras and Nicaragua to answer the following question(s). Table 2-2
Refer to Table 2-2. According to the law of comparative advantage, both Honduras and Nicaragua could gain if

A) Honduras produced all of the apples and oranges and Nicaragua did not produce anything.
B) Honduras specialized in producing apples, Nicaragua specialized in producing oranges, and they traded.
C) Honduras specialized in producing oranges, Nicaragua specialized in producing apples, and they traded.
D) Nicaragua and Honduras were both were self-sufficient and did not trade.

Question 76

Use the table below to choose the correct answer. The table outlines the production possibilities of Robinson Crusoe and Joe Friday. If Crusoe and Friday want to maximize their consumption possibilities,

A) Crusoe should specialize in producing good X and Friday in producing good Y, but no trade should be allowed.
B) Crusoe should specialize in producing good X and Friday in producing good Y; trade should occur to maximize joint consumption.
C) Crusoe should specialize in producing good Y and Friday in producing good X; trade should occur to maximize joint consumption.
D) both individuals should strive for self-sufficiency, which always maximizes output.

Question 77

Trade creates value by

A) moving goods from people who value the goods less to people who value the goods more.
B) permitting trading partners to expand output through specialization in areas where they each have a comparative advantage.
C) permitting trading partners to expand output through the adoption of mass production methods.
D) all of the above.

Question 78

Why is trade an important source of economic progress?

A) It allows the trading partners to produce a larger joint output through specialization in the areas where they have a comparative advantage.
B) It allows the trading partners to produce a larger joint output as the result of greater realization of cost reductions that accompany the adoption of mass production methods.
C) It makes it possible to realize gains from the discovery and dissemination of innovative products and production processes.
D) All of the above are correct.

Question 79

Use the production possibilities data below to answer the following question(s). Table 2-3
Refer to Table 2-3. The opportunity cost of 1 pound of potatoes for the rancher is

A) 5 hours of labor.
B) 4 hours of labor.
C) 5/4 pounds of meat.
D) 4/5 pound of meat.

Question 80

Use the production possibilities data below for Austria and Italy to answer the following question(s). Table 2-1
Refer to Table 2-1. According to the law of comparative advantage, both Austria and Italy could gain if

A) Austria produced all of the food and clothing and Italy did not produce anything.
B) Austria specialized in producing clothing, Italy specialized in producing food, and they traded.
C) Austria specialized in producing food, Italy specialized in producing clothing, and they traded.
D) Italy and Austria were both were self-sufficient and did not trade.