Deck 3: Comparative Advantage and the Production Possibilities Frontier

Question 1

Consider the data in the following table.


-Referring to the table above, Country A has an absolute advantage in the production of:

A) computers.
B) wheat.
C) both computers and wheat.
D) neither computers nor wheat.
E) None of the above

Answer 1

wheat.

Question 2

Consider the data in the following table.


-Referring to the table above, Country B has a comparative advantage in the production of:

A) computers.
B) wheat.
C) both computers and wheat.
D) neither computers nor wheat.
E) None of the above

Answer 2

computers.

Question 3

Consider the data in the following table.


-Referring to the table above, Country A has a comparative advantage in the production of:

A) computers.
B) wheat.
C) both computers and wheat.
D) neither computers nor wheat.
E) None of the above

Answer 3

wheat.

Question 4

Consider the data in the following table.


-Referring to the table above, when trade opens up between Countries A and B, Country A should specialize in producing:

A) computers.
B) wheat.
C) both computers and wheat.
D) neither computers nor wheat.
E) some product other than computers or wheat.

Question 5

Consider the data in the following table.


-Referring to the table above, when trade opens up between Countries A and B, Country B should specialize in producing:

A) computers.
B) wheat.
C) both computers and wheat.
D) neither computers nor wheat.
E) some product other than computers or wheat.

Question 6

Consider the data in the following table.


-Referring to the table above, the opportunity cost of producing a computer in Country A is:

A) 50 bushels of wheat.
B) 30 bushels of wheat.
C) 10 bushels of wheat.
D) 5 bushels of wheat.
E) none of the above

Question 7

Consider the data in the following table.


-Referring to the table above, the opportunity cost of producing a computer in Country B is:

A) 50 bushels of wheat.
B) 30 bushels of wheat.
C) 10 bushels of wheat.
D) 2 bushels of wheat.
E) 1 bushel of wheat.

Question 8

Consider the data in the following table.


-Referring to the table above, mutually beneficial trade will occur between the two countries so long as a computer trades for:

A) 1 bushel of wheat.
B) 2 bushels of wheat.
C) 4 bushels of wheat.
D) 5 bushels of wheat.
E) 6 bushels of wheat.

Question 9

Consider the data in the following table.


-Referring to the table above, Country A gains most from trade if a computer trades for:

A) 2 bushels of wheat.
B) 3 bushels of wheat.
C) 4 bushels of wheat.
D) 5 bushels of wheat.
E) 6 bushels of wheat.

Question 10

Consider the data in the following table.


-Referring to the table above, Country B gains most from trade if a computer trades for:

A) 2 bushels of wheat.
B) 3 bushels of wheat.
C) 4 bushels of wheat.
D) 5 bushels of wheat.
E) 6 bushels of wheat.

Question 11

If the U.S. can produce a combination of 10 shirts or 10 TVs and Mexico can produce a combination of 9 shirts or 5 TVs, then what should the U.S. do?

A) The U.S. should produce both shirts and TVs and export them to Mexico.
B) The U.S. should export shirts to and import TVs from Mexico.
C) The U.S. should import shirts from and export TVs to Mexico.
D) The U.S. should not trade with Mexico because they are self-sufficient.
E) Mexico should not trade with the U.S.

Question 12

Consider the data in the following table.


-Referring to the table above, Country A has an absolute advantage in the production of:

A) computers.
B) wheat.
C) both computers and wheat.
D) neither computers nor wheat.
E) None of the above

Question 13

Consider the data in the following table.


-Referring to the table above, Country B has a comparative advantage in the production of:

A) computers.
B) wheat.
C) both computers and wheat.
D) neither computers nor wheat.
E) None of the above

Question 14

Consider the data in the following table.


-Referring to the table above, Country A has a comparative advantage in the production of:

A) computers.
B) wheat.
C) both computers and wheat.
D) neither computers nor wheat.
E) None of the above

Question 15

Consider the data in the following table.


-Referring to the table above, when trade opens up between Countries A and B. Country A should specialize in producing:

A) computers.
B) wheat.
C) both computers and wheat.
D) neither computers nor wheat.
E) None of the above

Question 16

Consider the data in the following table.


-Referring to the table above, when trade opens up between Countries A and B. Country B should specialize in producing:

A) computers.
B) wheat.
C) both computers and wheat.
D) neither computers nor wheat.
E) None of the above

Question 17

Consider the data in the following table.


-Referring to the table above, the opportunity cost of producing a computer in Country A is:

A) 40 bushels of wheat.
B) 30 bushels of wheat.
C) 6 bushels of wheat.
D) 4 bushels of wheat.
E) 2 bushels of wheat.

Question 18

Consider the data in the following table.


-Referring to the table above, the opportunity cost of producing a computer in Country B is:

A) 40 bushels of wheat.
B) 30 bushels of wheat.
C) 6 bushels of wheat.
D) 2 bushels of wheat.
E) 1 bushel of wheat.

Question 19

Consider the data in the following table.


-Referring to the table above, which of the following would be a mutually acceptable terms of trade: 1 computer for:

A) 2 bushels of wheat.
B) 3 bushels of wheat.
C) 4 bushels of wheat.
D) 5 bushels of wheat.
E) 6 bushels of wheat.

Question 20

Consider the data in the following table.


-Referring to the above table, Country A gains most from trade if a computer trades for:

A) 2 bushels of wheat.
B) 3 bushels of wheat.
C) 4 bushels of wheat.
D) 5 bushels of wheat.
E) 6 bushels of wheat.

Question 21

Consider the data in the following table.


-Referring to the above table, Country B gains most from trade if a computer trades for:

A) 4 bushels of wheat.
B) 5 bushels of wheat.
C) 6 bushels of wheat.
D) 7 bushels of wheat.
E) 8 bushels of wheat.

Question 22

If the terms of trade is between each country's opportunity costs:

A) there is no basis for trade between the two countries.
B) both countries would gain from trade.
C) only one country would gain from trade.
D) one country would gain from trade, and one country would lose from trade.
E) All of the above

Question 23

Which of the following statements is true?

A) Low wages guarantee that the cost of labor is low.
B) High wages guarantee that the cost of labor is high.
C) The cost of labor is determined by the price and productivity of labor.
D) Labor always is cheaper in poor countries.
E) Labor is always more expensive in rich countries.

Question 24

The limits to mutually beneficial trade are determined by:

A) the exchange rate.
B) the opportunity costs of producing the two goods in each country.
C) tariffs and quotas imposed by the other country.
D) the terms of trade.
E) All of the above

Question 25

The concept of reciprocal demand suggests that:

A) the country with the greater demand for the other country's product will gain more from trade.
B) the country with the greater demand for the other country's product will gain less from trade.
C) that the demand for another country's product does not influence the terms of trade.
D) that the terms of trade will dictate the amount of debt the country will acquire to purchase the product.
E) Demand is more important than supply.

Question 26

If two countries are of unequal size:

A) the larger country gains more from trade.
B) the smaller country gains more from trade.
C) the terms of trade will equal the smaller country's opportunity costs of producing the two products.
D) All of the above
E) None of the above

Question 27

Given free trade, a small country tends to benefit the most from trade because:

A) small countries are more productive than large countries.
B) small countries are less productive than large countries.
C) small countries have lower incomes than larger countries.
D) small countries will have terms of trade near the opportunity costs of the large country.
E) None of the above

Question 28

Given free trade, a large country tends to benefit the least from trade because:

A) large countries are more productive than small countries.
B) large countries are less productive than small countries.
C) large countries have higher incomes than smaller countries.
D) large countries will have terms of trade near the opportunity costs of the small country.
E) All of the above

Question 29

The commodity terms of trade is calculated by:

A) (price of exports/price of imports) - 100.
B) (price of exports/price of imports) * 100.
C) (price of imports/price of exports) - 100.
D) (price of imports/price of exports) * 100.
E) None of the above

Question 30

If the U.S. export price index is 120 and its import price index is 105, its terms of trade is:

A) 15.
B) -15.
C) 114.2.
D) 87.5.
E) None of the above

Question 31

Gains from specialization and trade result in a country consuming:

A) inside its production possibilities frontier.
B) on its production possibilities frontier.
C) outside its production possibilities frontier.
D) less than it should.
E) None of the above

Question 32

In autarky, a country will maximize its standard of living when:

A) its production point is on the production possibilities frontier.
B) its productions point is inside the production possibilities frontier.
C) its production point is outside the production possibilities frontier.
D) when the production point is fixed.
E) None of the above

Question 33

With free trade under constant costs:

A) neither country will completely specialize its production.
B) as least one country will completely specialize its production.
C) at least one country will consume inside its production possibilities frontier.
D) All of the above
E) None of the above

Question 34

A point on a country's production possibilities frontier indicates:

A) a level of production that would cause unemployment.
B) a level of production that is unattainable.
C) an undesirable level of production.
D) a level of production where resources are fully employed.
E) All of the above

Question 35

If Japan's economy is subject to constant costs, then its supply curve of automobiles will be:

A) downward sloping.
B) upward sloping.
C) horizontal.
D) vertical.
E) indeterminate.

Question 36

According to the law of increasing costs:

A) the more one is willing to pay for resources the larger the level of production.
B) increasing production of a good will cause the price of the good to rise.
C) in order to produce additional units of a good it is necessary to forego. increasingly larger amount of an alternative good.
D) in order to produce additional units of a good it is necessary to forego a constant amount of an alternative good.
E) constant returns to scale prevails.

Question 37

When a production possibilities frontier is bowed out from the origin, production occurs under conditions of:

A) constant costs.
B) increasing costs.
C) decreasing costs.
D) indeterminate costs.
E) None of the above

Question 38

If a country is subject to increasing costs, then its production possibilities frontier is:

A) concave to the origin.
B) convex to the origin.
C) a straight line.
D) a fixed line.
E) All of the above

Question 39

If Japan's economy is subject to increasing costs, then its supply curve of automobiles will be:

A) downward sloping.
B) upward sloping.
C) horizontal.
D) vertical.
E) indeterminate.

Question 40

The slope of a country's social indifference curve is called:

A) the marginal rate of expansion.
B) the marginal rate of substitution.
C) the marginal rate of transformation.
D) the marginal benefits of trade.
E) the marginal rate of utility.

Question 41

The terms of trade (TOT) are:

A) P_m / P_x.
B) P_x / P_m.
C) Price of Tradable goods / price of nontradable goods.
D) value / weight.
E) weight / value.

Question 42

Reciprocal demand suggests that the actual international exchange ratio at which trade takes place depends on the trading partners interacting demands.

Question 43

If the terms of trade are not between the opportunity costs for the two countries, then the two countries will have no reason to trade.

Question 44

The terms of trade between any two countries for two goods must lie between their respective opportunity costs if both countries are to gain from trade.

Question 45

Limits to mutually beneficial trade are determined by the opportunity costs of producing the two goods in each country.

Question 46

An improvement of a country's terms of trade caused by a change in domestic conditions always improves a country's overall welfare

Question 47

An improvement of a country's terms of trade caused by a change in international conditions always improves a country's overall welfare.

Question 48

The terms of trade measures the relationship between the price a country receives for its exports and the price it pays for its imports.

Question 49

If the price difference for the same good in two countries is large enough, then only one country would gain from trade.

Question 50

If a large and a small country trade with one another the large country is likely to receive all of the gains from trade.

Question 51

Assume that the limits to mutually beneficial trade between the U.S. and India are 1Machine = 3Cloth and 1Machine = 5Cloth, respectively. The closer the ratio is to the U.S. ratio of 1Machine = 3Cloth, the better it is for India.

Question 52

based on the following information. Suppose a worker in Canada can produce either 100 skateboards or 200 jars of peanut butter per day. A worker in Guatemala can produce 200 skateboards or 600 jars of peanut butter per day.

-Canada has a comparative advantage in the production of skateboards.

Question 53

based on the following information. Suppose a worker in Canada can produce either 100 skateboards or 200 jars of peanut butter per day. A worker in Guatemala can produce 200 skateboards or 600 jars of peanut butter per day.

-Guatemala has an absolute advantage in the production of peanut butter.

Question 54

based on the following information. Suppose a worker in Canada can produce either 100 skateboards or 200 jars of peanut butter per day. A worker in Guatemala can produce 200 skateboards or 600 jars of peanut butter per day.

-Canada has a comparative advantage in the production of peanut butter.

Question 55

based on the following information. Suppose a worker in Canada can produce either 100 skateboards or 200 jars of peanut butter per day. A worker in Guatemala can produce 200 skateboards or 600 jars of peanut butter per day.

-The cost of skateboards in terms of peanut butter in Canada is 1SB=2PB.

Question 56

based on the following information. Suppose a worker in Canada can produce either 100 skateboards or 200 jars of peanut butter per day. A worker in Guatemala can produce 200 skateboards or 600 jars of peanut butter per day.

-The cost of skateboards in terms of peanut butter in Guatemala is 1SB=3PB.

Question 57

based on the following information. Suppose a worker in Canada can produce either 100 skateboards or 200 jars of peanut butter per day. A worker in Guatemala can produce 200 skateboards or 600 jars of peanut butter per day.

-A price ratio of 1SB=2.9PB would be good for both countries, but better for Canada than Guatemala.

Question 58

Small countries tend to benefit more from trade because their demand for products from large countries would tend to be lower than the large country's demand for their products.

Question 59

When two countries trade, it is always true that both countries benefit by exactly the same amount.

Question 60

If a country does not get at least half of the benefits from trade then it should not engage in trade.

Question 61

A rough indication of a country's terms of trade is the export price index divided by the import price index times 100.

Question 62

Countries that avoid trading with other countries are referred to as being in a state of autarky.

Question 63

A production possibilities frontier graphically represents the maximum output of a country when the supply of resources and technology are constant.

Question 64

Even with international trade a country must remain inside or on its production possibilities frontier.

Question 65

International trade allows a country to consume outside its production possibilities frontier.

Question 66

Constant opportunity costs results in upward sloping supply curves and concave production possibility frontiers.

Question 67

Constant costs leads countries engaging in trade to completely specialize in the production of the good that they export.

Question 68

A trading possibilities curve shows the consumption options a country has by specializing in the production of one good and trading or exporting it to obtain the other good.

Question 69

International trade guarantees that countries that engage in trade all benefit by exactly the same amount. Is this statement true or false? Explain your answer.

Question 70

Suppose that a country can convert wheat into textiles at a ratio of 3W = 1T. If the country could trade at 2.9W = 1T, it would be better off not trading. Explain why this statement is true or false.

Question 71

What is the commodity terms of trade? Why is it sometimes used as a measure of changes in the gains from trade? Explain some of the problems associated with this sort of use.

Question 72

Suppose a worker in Bolivia can produce 5 shoes per day and a worker in Chile can produce 1 shoe per day. The analogous figures for rings are 15 per day and 5 per day. Show and explain which country has an absolute advantage in which products. Explain which country has a comparative advantage in which product?