MRU2.3: Comparative Advantage

Suppose that after specializing and trading, Bob ends up with 5 bananas and 10 fish, while Ann ends up with 5 bananas and 20 fish. Which statement below is true and demonstrates the power of comparative advantage? - Neither Bob nor Ann could have produced the amount of bananas and fish that they end up with in this example. - The entire benefit of Ann's productivity advantage has been captured by Bob. - As Ann and Bob each get better at producing, they will enjoy more fish and more bananas. - This same outcome can be achieved regardless of who specializes in producing which good.

A: Neither Bob nor Ann could have produced the amount of bananas and fish that they end up with in this example.

Suppose that after specializing and trading, Bob ends up with 5 bananas and 10 fish while Ann ends up with 5 bananas and 20 fish. Which of the following is true about the terms of trade? - One banana must have traded for two fish. - One fish must have traded for one banana. - One banana must have traded for one fish. - One fish must have traded for two bananas.

A: One banana must have traded for two fish.

By the time Tasmania was "discovered" in 1642, it had become the simplest material culture in the modern world. This is because: - Tasmania traded based on comparative advantage, not absolute advantage. - the Tasmanian people rejected inventions such as stone tools and fishing nets. - Tasmania's isolation had left it unable to trade with the rest of the world. - Australia's unfair trade practices had destroyed the Tasmanian economy.

A: Tasmania's isolation had left it unable to trade with the rest of the world.

When individuals specialize and trade based on comparative advantage, an improvement in the ability of one individual to produce will benefit: - only the individual who experienced the improvement. - neither individual. - both individuals. - only the individual who did not experience the improvement.

A: both individuals.

Recall that, depending on how Ann spends her time, she can either catch 30 fish or gather 10 bananas. This means that if she chooses to catch one fish, she must: - give up three fish. - give up one third of a fish. - give up one third of a banana. - give up three bananas.

A: give up one third of a banana.

In terms of productive ability, the ______, the greater the benefit from trading with one another. - more productive two individuals are - greater the similarity between two individuals - less productive two individuals are - greater the difference between two individuals

A: greater the difference between two individuals

The increase in the total amount of bananas and fish that Ann and Bob enjoy as a result of specialization according to comparative advantage ______ the same as the increase that results from the division of labor because _____. - is not; neither Ann nor Bob has to improve their productivity in order to get the increase - is not; it is the direct result of Ann and Bob becoming more productive after specializing - is; it is the direct result of Ann and Bob becoming more productive after specializing - is; neither Ann nor Bob has to improve their productivity in order to get the increase

A: is not; neither Ann nor Bob has to improve their productivity in order to get the increase

In order to understand how specialization and trade according to comparative advantage can lead to more total output, one needs to understand the concept of: - opportunity cost. - the division of labor. - learning by doing. - absolute advantage.

A: opportunity cost.

Trade based on comparative advantage allows us to produce and consume more, even if no one ever gets better at producing, simply by: - using the latest production technology. - rearranging who produces what. - maximizing the terms of trade. - rearranging who consumes what.

A: rearranging who produces what.

Suppose that Ann was able to catch only 20 fish in the time it would otherwise take her to gather 10 bananas, and that Bob's abilities were the same as in the video. If Ann specialized in catching fish and then traded 7 fish to Bob in exchange for 5 bananas, this would benefit Ann because: - she gives up less than 2 fish per banana. - she gives up less than 1 fish per banana. - she gives up less than 1.4 fish per banana. - she gets more than 2 bananas per fish.

A: she gives up less than 2 fish per banana.