Question 1

Which of the following statements is TRUE?

Accepted Answer

A)  Trade makes workers in high productivity countries less productive. 
B)  Trade causes workers in low-wage countries receive an even lower wage. 
C)  Specialization and trade raise wages in both countries party to the trade. 
D)  Specialization and trade raise productivity but not wages.

Question 2

Suppose a country without any international trade opens its borders to international trade. How will its location on its production possibility frontier change?

Accepted Answer

A)  The country moves from inside the PPF to on the PPF. 
B)  The country moves from on the PPF to beyond the PPF. 
C)  The country moves along the PPF toward its comparative advantage. 
D)  The country moves along the PPF away from its comparative advantage.

Question 3

In Colombia, it takes three workers to produce two pounds of coffee. In Mexico, it takes four workers to produce one pound of coffee. Therefore:

Accepted Answer

A)  Colombia has a comparative advantage in the production of coffee. 
B)  Mexico has a comparative advantage in the production of coffee. 
C)  in Colombia, the opportunity cost of producing one pound of coffee is two-thirds. 
D)  Colombia has an absolute advantage in the production of coffee.

Question 4

Facilitators of trade (such as Pierre Omidyar, the developer of eBay):

Accepted Answer

A)  may become very rich since they are creating value for many individuals. 
B)  find it very hard to profit from their services since they are not directly involved in the trades. 
C)  typically only profit from their services if they are able to obtain government patent rights. 
D)  are usually seen as taking advantage of consumers.

Question 5

The slope of the production possibilities frontier at a point indicates ________.

Accepted Answer

A)  the preferences of a country 
B)  a country's total gains from trade 
C)  a country's opportunity cost of production 
D)  a country's trade balance

Question 6

Which of the following statements is TRUE?

Accepted Answer

A)  Only a high-wage country can benefit by trading with a low- wage country. 
B)  A high-wage country cannot benefit by trading with a low- wage country. 
C)  Trade raises the wages of workers in low- and high-wage countries. 
D)  There is an inverse relationship between productivity and wages.

Question 7

A producer has a comparative advantage over other producers if his production of the good involves:

Accepted Answer

A)  more inputs. 
B)  fewer inputs. 
C)  a higher opportunity cost. 
D)  a lower opportunity cost.

Question 8

Specialization and trade:

Accepted Answer

A)  increase the costs of production because of decreased output. 
B)  decrease the per-unit costs of production because of economies of scale associated with large-scale production. 
C)  create diseconomies of scale, raising the per-unit costs of production. 
D)  only work within countries, not across countries.

Question 9

Your professor hires a teaching assistant to grade student assignments even though he may do the task faster and perhaps more accurately. How can you explain this behavior using the theory of comparative advantage?

Accepted Answer

The answer of Your professor hires a teaching assistant to...

Question 10

Mark values his drum set at $800 and Ella values her guitar at $1,000. Suppose that Mark trades his drum set for Ella's guitar.

Accepted Answer

A)  This trade makes Ella worse off by $200. 
B)  This trade makes Mark better off by $200. 
C)  Mark must value Ella's guitar for at least $1,000, and Ella must value Mark's drum set for at least $800. 
D)  This trade creates value by moving the guitar and drum set to people who value them more.

Question 11

Which of the following statements is TRUE? I. Trade allows people to specialize in their area of expertise, increasing society's output of goods and services. II. Specialization and the division of knowledge decreased with the fall of the Berlin Wall and opening of China's economy to the world. III. Society's knowledge is limited if everybody produces the same thing.

Accepted Answer

A)  I only 
B)  II and III only 
C)  I and III only 
D)  II only

Question 12

Which of the following best characterizes the relationship between the parties to a trade and the gains from trade?

Accepted Answer

A)  Gains from trade are fueled by differences in preferences and differences in opportunity costs of production. 
B)  Gains from trade are fueled by differences in preferences only. 
C)  Gains from trade are fueled by differences in opportunity costs of production only. 
D)  Gains from trade are greatest when there are no differences between the two parties to trade.

Question 13

Reference: Ref 2-2 (Figure: PPF Goods X & Y) Refer to the figure. Point A represents an allocation of resources that is:

Accepted Answer

A)  efficient. 
B)  inefficient. 
C)  impossible. 
D)  the result of trade.

Question 14

If each of us had to grow our own food:

Accepted Answer

A)  civilization as we know it would collapse and billions of people would have much less food to eat. 
B)  we would have more time for other pursuits. 
C)  people would be richer since they would no longer have to spend money on groceries. 
D)  the total amount of knowledge in society would increase since everyone would have to learn about farming.

Question 15

When comparing two countries with two goods each, if one country has a comparative advantage in one good, the other country will have a comparative advantage in the other good.

Accepted Answer

A) True 
 B)False

Question 16

Reference: Ref 2-8 (Table: Production in the United States and Germany) According to the table, which of the following statements is true?

Accepted Answer

A)  The United States has a comparative advantage in clocks. 
B)  Germany has an absolute advantage in clocks and sofas. 
C)  The United States has a comparative advantage in sofas. 
D)  The United States has a comparative advantage in clocks and sofas.

Question 17

Which of the following is NOT a commonly recognized benefit of trade?

Accepted Answer

A)  Trade makes people better off when preferences differ. 
B)  Trade creates the need for institutions such as the World Trade Organization. 
C)  Trade increases productivity through specialization and the division of knowledge. 
D)  Trade increases productivity through comparative advantage.

Question 18

Trade works best when it is between people who share similar preferences.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is true? I. Compared to a modern economy, the division of knowledge was greater in a primitive economy because every family grew its own food, made their own clothing, and constructed their own shelter. II. Nobody understands the entire process of producing even the simplest of products in a modern economy, like a lead pencil. III. The collapse of communism and the opening of the Chinese economy to the rest of the world have increased the division of knowledge, leading to increased world output.

Accepted Answer

A)  I only 
B)  III only 
C)  II and III only 
D)  I, II, and III

Question 20

The main reason why specialization can raise productivity is that:

Accepted Answer

A)  knowledge in human brains is limited. 
B)  some persons have more knowledge than others. 
C)  it is always good to know less than more. 
D)  it is impossible to learn anything well.

Exam 2: The Power of Trade and Comparative Advantage

Which of the following statements is TRUE?

Suppose a country without any international trade opens its borders to international trade. How will its location on its production possibility frontier change?

In Colombia, it takes three workers to produce two pounds of coffee. In Mexico, it takes four workers to produce one pound of coffee. Therefore:

Facilitators of trade (such as Pierre Omidyar, the developer of eBay) :

The slope of the production possibilities frontier at a point indicates ________.

Which of the following statements is TRUE?

A producer has a comparative advantage over other producers if his production of the good involves:

Specialization and trade:

Your professor hires a teaching assistant to grade student assignments even though he may do the task faster and perhaps more accurately. How can you explain this behavior using the theory of comparative advantage?

Mark values his drum set at $800 and Ella values her guitar at $1,000. Suppose that Mark trades his drum set for Ella's guitar.

Which of the following best characterizes the relationship between the parties to a trade and the gains from trade?

Reference: Ref 2-2 (Figure: PPF Goods X & Y) Refer to the figure. Point A represents an allocation of resources that is:

If each of us had to grow our own food:

When comparing two countries with two goods each, if one country has a comparative advantage in one good, the other country will have a comparative advantage in the other good.

Reference: Ref 2-8 (Table: Production in the United States and Germany) According to the table, which of the following statements is true?

Which of the following is NOT a commonly recognized benefit of trade?

Trade works best when it is between people who share similar preferences.

The main reason why specialization can raise productivity is that: