Question 1

Graph 3-1
  
These figures illustrate the production possibilities frontiers for Robinson Crusoe and Friday with 12 hours of labour.
-According to Graph 3-1:

Accepted Answer

A)   Robinson Crusoe has an absolute advantage in coconuts, and Friday has a comparative advantage in fish
B)   Robinson Crusoe has an absolute advantage in both goods, and Friday has a comparative advantage in coconuts
C)   Robinson Crusoe has an absolute advantage in fish, and Friday has a comparative advantage in coconuts
D)   Robinson Crusoe has an absolute advantage in neither goods, and Friday has a comparative advantage in fish A

Question 2

Table 3-3
 
-Refer to Table 3-3. If the US and Europe trade according to the principle of comparative advantage, Europe will export what product to the US?

Accepted Answer

A)   cars
B)   both aeroplanes and cars
C)   aeroplanes
D)   Europe should buy both products from the US C

Question 3

Table 3-3
 
-Refer to Table 3-3. If the US and Europe trade according to the principle of comparative advantage, the US will export what product to Europe?

Accepted Answer

A)   cars
B)   both aeroplanes and cars
C)   aeroplanes
D)   the US should buy both products from Europe A

Question 4

Table 3-2
 
-Refer to Table 3-2. For Lee the opportunity cost of one kg of rice is:

Accepted Answer

A)   4/3 kg of butter
B)   3/4 kg of butter
C)   2/3 kg of butter
D)   3/2 kg of butter

Question 5

The conclusions of Adam Smith and David Ricardo on the gains from trade are no longer valid due to the increase of barriers to trade.

Accepted Answer

A) True 
 B)False

Question 6

Adam Smith:

Accepted Answer

A)   wrote An Inquiry into the Nature and Causes of the Wealth of Nations
B)   opposed free trade
C)   wrote the general theory of economics
D)   all of the above are correct

Question 7

Table 3-3
 
-Refer to Table 3-3. The opportunity cost of one aeroplane for the US is:

Accepted Answer

A)   four cars
B)   three cars
C)   1/3 car
D)   1/4 car

Question 8

David Riccardo developed the theory of comparative advantage, as we know it today.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is NOT correct?

Accepted Answer

A)   trade allows for specialisation
B)   trade is good for nations
C)   trade is based on absolute advantage
D)   trade allows individuals to consume outside their individual production possibilities curve

Question 10

If capital in China is less productive than capital in Australia in agricultural production:

Accepted Answer

A)   neither nation can benefit from trade
B)   only China can benefit from trade in agricultural goods
C)   only Australia can benefit from trade in agricultural goods
D)   both nations can benefit from increased trade in agricultural goods

Question 11

A constant trade-off in the production of two goods implies that the production possibility frontier will be a curve rather than a straight line.

Accepted Answer

A) True 
 B)False

Question 12

Give an example of a good or service that you regularly buy. Then give an example of a good or service you provide in your own household. Why don't you become more self-sufficient?

Accepted Answer

The answer of Give an example of a good or...

Question 13

Use the accompanying table to answer the following questions.
Table 3-4
 
-Refer to Table 3-4. If England and Spain trade according to the principle of comparative advantage, England will export which product to Spain?

Accepted Answer

A)   bread
B)   cheese
C)   both cheese and bread
D)   England cannot benefit from trade with Spain

Question 14

Table 3-3
 
-According to Table 3-3:

Accepted Answer

A)   Europe has a comparative advantage in aeroplanes, and the US has an absolute advantage in cars
B)   Europe has a comparative advantage in cars, and the US has an absolute advantage in aeroplanes
C)   Europe has a comparative advantage in cars, and the US has an absolute advantage in neither goods
D)   Europe has a comparative advantage in aeroplanes, and the US has an absolute advantage in both goods

Question 15

Suppose that Vanuatu can produce 40 logs or 400 kg of sugar cane per month and Fiji can produce 30 logs or 300 kg of sugar cane per month. Will it pay for Vanuatu and Fiji to specialise and trade in these two commodities?

Accepted Answer

The answer of Suppose that Vanuatu can produce 40 logs...

Question 16

Use the accompanying table to answer the following questions.
Table 3-4
 
-Refer to Table 3-4. The opportunity cost of one unit of cheese in England is:

Accepted Answer

A)   four units of bread
B)   two units of bread
C)   1/2 unit of bread
D)   1/4 unit of bread

Question 17

Lee can pick 30 apples in one hour. He can pick 60 kiwifruit in half an hour. The opportunity cost to Lee of picking one apple is four kiwifruit.

Accepted Answer

A) True 
 B)False

Question 18

Imports are:

Accepted Answer

A)   football players who switch the club they play for
B)   an example of absolute advantage
C)   goods produced domestically and sold in foreign countries
D)   goods produced in foreign countries and sold domestically

Question 19

David Ricardo made the statement that 'It is a maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy'.

Accepted Answer

A) True 
 B)False

Question 20

As long as two people have different opportunity costs, each can gain from trade by being able to obtain a good at a price lower than his or her opportunity cost.

Accepted Answer

A) True 
 B)False

Exam 3: Interdependence and the Gains From Trade

Graph 3-1 These figures illustrate the production possibilities frontiers for Robinson Crusoe and Friday with 12 hours of labour. -According to Graph 3-1:

Table 3-3 -Refer to Table 3-3. If the US and Europe trade according to the principle of comparative advantage, Europe will export what product to the US?

Table 3-3 -Refer to Table 3-3. If the US and Europe trade according to the principle of comparative advantage, the US will export what product to Europe?

Table 3-2 -Refer to Table 3-2. For Lee the opportunity cost of one kg of rice is:

The conclusions of Adam Smith and David Ricardo on the gains from trade are no longer valid due to the increase of barriers to trade.

Adam Smith:

Table 3-3 -Refer to Table 3-3. The opportunity cost of one aeroplane for the US is:

David Riccardo developed the theory of comparative advantage, as we know it today.

Which of the following is NOT correct?

If capital in China is less productive than capital in Australia in agricultural production:

A constant trade-off in the production of two goods implies that the production possibility frontier will be a curve rather than a straight line.

Give an example of a good or service that you regularly buy. Then give an example of a good or service you provide in your own household. Why don't you become more self-sufficient?

Use the accompanying table to answer the following questions. Table 3-4 -Refer to Table 3-4. If England and Spain trade according to the principle of comparative advantage, England will export which product to Spain?

Table 3-3 -According to Table 3-3:

Suppose that Vanuatu can produce 40 logs or 400 kg of sugar cane per month and Fiji can produce 30 logs or 300 kg of sugar cane per month. Will it pay for Vanuatu and Fiji to specialise and trade in these two commodities?

Use the accompanying table to answer the following questions. Table 3-4 -Refer to Table 3-4. The opportunity cost of one unit of cheese in England is:

Lee can pick 30 apples in one hour. He can pick 60 kiwifruit in half an hour. The opportunity cost to Lee of picking one apple is four kiwifruit.

Imports are:

David Ricardo made the statement that 'It is a maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy'.

As long as two people have different opportunity costs, each can gain from trade by being able to obtain a good at a price lower than his or her opportunity cost.