Microeconomics Chapter 3

Suppose that a worker in Tabletland can produce either 4 tablets or 1 television per year, and a worker in Ledville can produce either 2 tablets or 4 televisions per year. Each nation has 50 workers. Also suppose that each country completely specializes in producing the good in which it has a comparative advantage. If Tabletland trades 50 tablets to Ledville in exchange for 50 televisions each year, then each country's maximum consumption of new tablets and televisions per year will be (A.)150 tablets, 50 televisions in Tabletland and 50 tablets, 150 televisions in Ledville. (B.)250 tablets, 50 televisions in Tabletland and 50 tablets, 250 televisions in Ledville. (C.)200 tablets, 0 televisions in Tabletland and 0 tablets, 200 televisions in Ledville. (D.)100 tablets, 100 televisions in Tabletland and 100 tablets, 100 televisions in Ledville.

(A.)150 tablets, 50 televisions in Tabletland and 50 tablets, 150 televisions in Ledville.

Suppose that a worker in Shipville can produce either 5 units of oats or 20 pounds of tuna per year, and a worker in Grainland can produce either 20 units of oats or 5 pounds of tuna per year. There are 20 workers in each country. No trade occurs between the two countries. Shipville produces and consumes 50 units of oats and 200 pounds of tuna per year while Grainland produces and consumes 200 units of oats and 50 pound of tuna per year. If trade were to occur, Shipville would trade 60 pounds of tuna for 60 units of oats. If Shipville now completely specializes in tuna production, how many pounds of tuna could it now consume along with the 60 units of imported oats? (A.)340 pounds (B.)400 pounds (C.)460 pounds (D.)140 pounds

(A.)340 pounds

Both Denis and Carol produce cupcakes and cookies. If Denis's opportunity cost of 1 cupcake is 3 cookies and Carol's opportunity cost of 1 cupcake is 4 cookies, then (A.)Denis has a comparative advantage in the production of cupcakes. (B.)Carol has a comparative advantage in the production of cupcakes. (C.)Denis has a comparative advantage in the production of cookies. (D.)Denis has a comparative advantage in the production of both cupcakes and cookies.

(A.)Denis has a comparative advantage in the production of cupcakes.

Suppose Canada and China can both produce cars and airplanes, and Canada has the comparative advantage in the production of airplanes while China has the comparative advantage in the production of cars. Also, suppose China has an absolute advantage in the production of both cars and airplanes. China should (A.)export cars to Canada and import airplanes from Canada. (B.)not trade cars or airplanes with Canada. (C.)export both cars and airplanes to Canada. (D.)import cars from Canada and export airplanes to Canada.

(A.)Export cars to Canada and import airplanes from Canada.

Trevor can shovel a driveway in two hours or he can plow a parking lot in 30 minutes. Paul can shovel a driveway in one hour or he can plow a parking lot in one hour. Given this we know that (A.)Trevor has an absolute advantage in shoveling driveways. (B.)Trevor has a comparative advantage in shoveling driveways. (C.)Trevor has an absolute advantage in plowing a parking lot. (D.)Paul has a comparative advantage in plowing parking lots.

(C.)Trevor has an absolute advantage in plowing a parking lot.

The principle of comparative advantage does not provide answers to certain questions. One of those questions is (A.)Is it possible for specialization and trade to benefit more than one party to a trade? (B.)Is it absolute advantage or comparative advantage that really matters? (C.)What determines the price at which trade takes place? (D.)Is it possible for specialization and trade to increase total output of traded goods?

(C.)What determines the price at which trade takes place?

Which of the following statements about comparative advantage is not true? (A.)Comparative advantage is determined by the opportunity cost of production. (B.)The principle of comparative advantage applies to countries as well as to individuals. (C.)Economists use the principle of comparative advantage to emphasize the potential benefits of free trade. (D.)A country cannot have a comparative advantage in producing a good unless it has an absolute advantage in producing that good.

(D.)A country cannot have a comparative advantage in producing a good unless it has an absolute advantage in producing that good.

Principle of Comparative Advantage.

Everyone does best when each person (or each country) concentrates on the activities for which his or her opportunity cost is lowest.

Consumption Possibilities Frontier.

Shows a nation's possible combinations of goods available as a result of specialization and exchange.

Comparative Advantage.

The ability to produce a good at a lower opportunity cost than another producer.

Absolute Advantage.

The ability to produce a good using fewer inputs than another producer.