Chapter 2

Which of the following is NOT an outcome of trade? A. People with different preferences are made better off. B. Specialization and increased productivity develop. C. A division of knowledge among trading partners develops. D. People in poor countries are made worse off.

D. People in poor countries are made worse off.

Table: iPhone and iPod Production Reference: Ref 2-1 (Table: iPhone and iPod Production) According to the table on iPhone and iPod Production, the opportunity cost of producing one iPhone is: A. 3/4 of one iPod for Canada, and one iPod for the United States. B. 4/3 of one iPod for Canada, and two iPods for the United States. C. two iPods for Canada, and four iPods for the United States. D. one iPod for Canada, and 3/4 of one iPod for the United States.

A. 3/4 of one iPod for Canada, and one iPod for the United States.

Figure: PPF Nickel & Textiles Reference: Ref 2-3 (Figure: PPF Nickel & Textiles) Refer to the figure. What is the maximum amount of textiles China can produce? A. 8 tons B. 6 tons C. 4 tons D. 10 tons

A. 8 tons

Anita is a wonderful baker and can bake 10 cakes in a day, but then has no time left to make cookies. If she bakes only cookies, she can make 200 cookies in a day. John can make equally delicious cakes and cookies but can only make seven cakes or 100 cookies in a day. Based on this information, which of the following statements is true? A. John has the comparative advantage in the production of cakes. B. Anita has the comparative advantage in the production of both cakes and cookies. C. John has the absolute advantage in the production of cookies. D. Anita has the comparative advantage in the production of cakes.

A. John has the comparative advantage in the production of cakes.

To benefit from trade, a person should: A. specialize in an activity for which she has a comparative advantage. B. do nothing at all. C. specialize in an activity for which she has an absolute advantage. D. do everything she possibly can.

A. specialize in an activity for which she has a comparative advantage.

Absolute advantage derives from which of the following? A. the lowest cost production B. the least expensive labor force C. the best educated labor force D. the most suitable climate

A. the lowest cost production

Anita is a wonderful baker and can bake 10 cakes in a day, but then has no time left to make cookies. If she bakes only cookies, she can make 200 cookies in a day. John can make equally delicious cakes and cookies but can only make seven cakes or 100 cookies in a day. Based on this information, which of the following statements is true? A. Anita should bake cakes and John should bake cookies. B. Anita should bake cookies and John should bake cakes. C. Anita and John should split their time equally between cakes and cookies. D. Anita should split her time between cakes and cookies. John should bake cakes.

B. Anita should bake cookies and John should bake cakes.

Table: iPhone and iPod Production Reference: Ref 2-1 (Table: iPhone and iPod Production) According to the table on iPhone and iPod Production, which of the following is TRUE about Canadian and U.S. comparative advantages? A. Canada has a comparative advantage in producing both iPhones and iPods. B. Canada has a comparative advantage in producing iPhones, and the United States has a comparative advantage in producing iPods. C. The United States has a comparative advantage in producing both iPhones and iPods. D. Canada has a comparative advantage in producing iPods, and the United States has a comparative advantage in producing iPhones.

B. Canada has a comparative advantage in producing iPhones, and the United States has a comparative advantage in producing iPods.

A producer has a comparative advantage over other producers if his production of the good involves: A. fewer inputs. B. a lower opportunity cost. C. a higher opportunity cost. D. more inputs.

B. a lower opportunity cost.

A producer has a comparative advantage over other producers if his production of the good involves: A. more inputs. B. a lower opportunity cost. C. a higher opportunity cost. D. fewer inputs.

B. a lower opportunity cost.

The ability of one producer to produce one good or service using fewer inputs than another producer is: A. competition. B. absolute advantage. C. comparative advantage. D. opportunity cost.

B. absolute advantage.

Table: Production Possibilities for the United States and Mexico Reference: Ref 2-5 (Table: Production Possibilities for the United States and Mexico) According to the table on Production Possibilities for the United States and Mexico, Mexico's opportunity cost of producing each ton of potatoes is ______, while the United States' opportunity cost of producing each ton of potatoes is ______. A. 0.125 tons of potatoes; 0.2 tons of potatoes B. eight tons of corn; five tons of corn C. five tons of corn; 0.2 tons of corn D. eight tons of corn; 0.2 tons of potatoes

B. eight tons of corn; five tons of corn

As trade becomes more widespread, specialization ______, which in turn ______ productivity. A. increases; decreases B. increases; increases C. decreases; increases D. decreases; decreases

B. increases; increases

Knowledge increases ____________ and specialization __________ total output. A. perception; increases B. productivity; increases C. education; increases D. economies of scale; decreases

B. productivity; increases

David sells his car, which he considers worthless, to Cameron for $200. Which of the following statements is true? A. David is made better off by the trade, but Cameron is made worse off. B. Cameron is the only one made better off by the trade. C. David and Cameron must have different preferences for the car. D. This trade did not create value because Cameron is buying a car that David considers worthless.

C. David and Cameron must have different preferences for the car.

Figure: PPF Goods X & Y Reference: Ref 2-2 (Figure: PPF Goods X & Y) Refer to the figure. Which of the points representing various consumption possibilities for the country portrayed above is only attainable through foreign trade? A. Point A B. Point B C. Point C

C. Point C

Table: iPhone and iPod Production Reference: Ref 2-1 (Table: iPhone and iPod Production) According to the table on iPhone and iPod Production, which of the following is TRUE? A. The United States has an absolute advantage in producing iPhones, and Canada has an absolute advantage in producing iPods. B. Canada has an absolute advantage in producing both iPhones and iPods. C. The United States has an absolute advantage in producing both iPhones and iPods. D. Canada has an absolute advantage in producing iPhones, and the United States has an absolute advantage in producing iPods.

C. The United States has an absolute advantage in producing both iPhones and iPods.

According to the theory of comparative advantage, a country should specialize in producing a good that involves: A. fewer inputs than those in other countries. B. a higher opportunity cost than that of other countries. C. a lower opportunity cost than that of other countries. D. more inputs than those in other countries.

C. a lower opportunity cost than that of other countries.

Table: Production Possibilities for the United States and Mexico Reference: Ref 2-5 (Table: Production Possibilities for the United States and Mexico) According to the table on Production Possibilities for the United States and Mexico, the United States has an absolute advantage in ________ and a comparative advantage in _________. A. both goods; corn B. nothing; potatoes C. both goods; potatoes D. potatoes; corn

C. both goods; potatoes

The trade networks of the Roman Empire: A. did not facilitate the transport of goods from different parts of the world. B. show that globalization is a new phenomenon. C. fell apart in the Medieval era, leading to the Dark Ages. D. were not of great importance even before the Dark Ages.

C. fell apart in the Medieval era, leading to the Dark Ages.

Trade tends to: A. decrease wages in all countries. B. decrease wages in developed countries, but increase wages in lesser-developed countries. C. increase wages in all countries. D. increase wages in developed countries, but decrease wages in lesser-developed countries.

C. increase wages in all countries.

A country has an absolute advantage in production if: A. it has the lowest opportunity cost of producing a good. B. other countries can produce the same good using fewer inputs. C. it can produce the same good using fewer inputs than another country. D. it can produce a good using fewer inputs than it takes another country to produce a different good.

C. it can produce the same good using fewer inputs than another country.

Division of knowledge refers to: A. assigning one person to learn all the different ways to perform the same task. B. limiting what each person knows about another person. C. people learning different tasks for which they each have a comparative advantage. D. dividing tasks into different subtasks and having one person perform all these subtasks.

C. people learning different tasks for which they each have a comparative advantage.

The real cost of producing a good is: A. the resources that were used to make the good. B. the dollar cost of inputs used to make the item. C. the opportunity cost of producing the good. D. the dollar amount it costs to sell the good.

C. the opportunity cost of producing the good.

If instead of specialized doctors (neurologists, cardiologists, gastroenterologists, etc.) we had doctors who each knew the same things about all aspects of medicine it would be: A. better because we could just go to one doctor who could handle all our needs. B. better because total medical knowledge in society would increase. C. worse because total medical knowledge in society would decrease. D. worse because the human brain is unlimited.

C. worse because total medical knowledge in society would decrease.

Figure: PPF Nickel & Textiles Reference: Ref 2-3 (Figure: PPF Nickel & Textiles) Refer to the figure. How many tons of textiles does Australia give up to produce one ton of nickel? A. 1/2 B. 3 C. 2 D. 1/3

D. 1/3

The benefits of trade include: I. higher output due to specialization. II. higher output due to comparative advantage. III. increased welfare when preferences differ. A. II and III only B. I and III only C. I and II only D. I, II, and III

D. I, II, and III

Table: Production Possibilities for the United States and Mexico Reference: Ref 2-5 (Table: Production Possibilities for the United States and Mexico) According to the table on Production Possibilities for the United States and Mexico, Mexico has an absolute advantage in ________ and a comparative advantage in _________. A. corn; potatoes B. potatoes; corn C. neither good; potatoes D. neither good; corn

D. neither good; corn

The production possibilities frontier shows: A. the maximum level of a country's productivity given its resources and outputs. B. the combinations of inputs that a country has given its outputs and productivity. C. the combinations of outputs and resources that a country possesses given its productivity. D. the combinations of outputs a country can produce given its resources and productivity.

D. the combinations of outputs a country can produce given its resources and productivity.

True or False: Trade makes people better off only when they all have the same preferences.

False