ABE 204 Ch 3
T/F: Trade can benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage.
True
T/F: Trade can make some individuals worse off, even as it makes the country as a whole better off.
True
T/F: Two countries can achieve gains from trade even if one country has an absolute advantage in the production of both goods.
True
T/F: Unless two people who are producing two goods have exactly the same opportunity costs, then one person will have a comparative advantage in one good, and the other person will have a comparative advantage in the other good.
True
T/F: Trade allows all countries to achieve greater prosperity.
True
For two individuals who engage in the same two productive activities, it is impossible for one of the two individuals to a. have a comparative advantage in both activities. b. have an absolute advantage in both activities. c. be more productive per unit of time in both activities. d. gain from trade with each other.
A
If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then a. Iowa has a comparative advantage in the production of corn. b. Iowa has an absolute advantage in the production of corn. c. Iowa should import corn from Oklahoma. d. Oklahoma should produce just enough corn to satisfy its own residents' demands.
A
Refer to Figure 3-1. The rate of tradeoff between producing chairs and producing couches depends on how many chairs and couches are being produced in a. Panel (a). b. Panel (b). c. both Panel (a) and Panel (b). d. neither Panel (a) nor Panel (b).
A
Trade between countries a. allows each country to consume at a point outside its production possibilities frontier. b. limits a country's ability to produce goods and services on its own. c. must benefit both countries equally; otherwise, trade is not mutually beneficial. d. can best be understood by examining the countries' absolute advantages.
A
Which of the following statements about comparative advantage is not true? a. Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources. 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 may have a comparative advantage in producing a good, even though it lacks an absolute advantage in producing that good.
A
The gains from trade are a. evident in economic models, but seldom observed in the real world. b. evident in the real world, but impossible to capture in economic models. c. a result of more efficient resource allocation than would be observed in the absence of trade. d. based on the principle of absolute advantage.
C
Canada and the U.S. both produce wheat and computer software. Canada is said to have the comparative advantage in producing wheat if a. Canada requires fewer resources than the U.S. to produce a bushel of wheat. b. the opportunity cost of producing a bushel of wheat is lower for Canada than it is for the U.S. c. the opportunity cost of producing a bushel of wheat is lower for the U.S. than it is for Canada. d. the U.S. has an absolute advantage over Canada in producing computer software.
B
Comparative advantage is related most closely to which of the following? a. output per hour b. opportunity cost c. efficiency d. bargaining strength in international trade
B
People who provide you with goods and services a. are acting out of generosity. b. do so because they get something in return. c. have chosen not to become interdependent. d. are required to do so by the government.
B
Refer to Figure 3-1. The rate of tradeoff between producing chairs and producing couches is constant in a. Panel (a). b. Panel (b). c. both Panel (a) and Panel (b). d. neither Panel (a) nor Panel (b).
B
Specialization and trade are closely linked to a. absolute advantage. b. comparative advantage. c. gains to some traders that exactly offset losses to other traders. d. shrinkage of the economic pie.
B
The opportunity cost of an item is a. the number of hours that one must work in order to buy one unit of the item. b. what you give up to get that item. c. always less than the dollar value of the item. d. always greater than the cost of producing the item.
B
Total output in an economy increases when each person specializes because a. there is less competition for the same resources. b. each person spends more time producing that product in which he or she has a comparative advantage. c. a wider variety of products will be produced within each country due to specialization. d. government necessarily plays a larger role in the economy due to specialization
B
Trade can make everybody better off because it a. increases cooperation among nations. b. allows people to specialize according to comparative advantage. c. requires some workers in an economy to be retrained. d. reduces competition among domestic companies.
B
A production possibilities frontier is a straight line when a. the more resources the economy uses to produce one good, the fewer resources it has available to produce the other good. b. an economy is interdependent and engaged in trade instead of self-sufficient. c. the rate of tradeoff between the two goods being produced is constant. d. the rate of tradeoff between the two goods being produced depends on how much of each good is being produced.
C
Absolute advantage is found by comparing different producers' a. opportunity costs. b. payments to land, labor, and capital. c. input requirements per unit of output. d. locational and logistical circumstances.
C
An economy's production possibilities frontier is also its consumption possibilities frontier a. under all circumstances. b. under no circumstances. c. when the economy is self-sufficient. d. when the rate of tradeoff between the two goods being produced is constant.
C
The principle of comparative advantage does not provide answers to certain questions. One of those questions is a. Do specialization and trade benefit more than one party to a trade? b. Is it absolute advantage or comparative advantage that really matters? c. How are the gains from trade shared among the parties to a trade? d. Is it possible for specialization and trade to increase total output of traded goods?
C
The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers to produce the same amount of that good, a. has a low opportunity cost of producing that good, relative to the opportunity costs of other producers. b. has a comparative advantage in the production of that good. c. has an absolute advantage in the production of that good. d. should be the only producer of that good.
C
The production possibilities frontier illustrates a. the combinations of output that an economy should produce. b. the combinations of output that an economy should consume. c. the combinations of output that an economy can produce. d. All of the above are correct.
C
What must be given up to obtain an item is called a. out-of-pocket cost. b. comparative worth. c. opportunity cost. d. absolute value.
C
When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy a. falls. b. stays the same. c. rises. d. may fall, rise, or stay the same.
C
By definition, exports are a. limits placed on the quantity of goods brought into a country. b. goods in which a country has an absolute advantage. c. people who work in foreign countries. d. goods produced domestically and sold abroad.
D
By definition, imports are a. people who work in foreign countries. b. goods in which a country has an absolute advantage. c. limits placed on the quantity of goods leaving a country. d. goods produced abroad and sold domestically.
D
Economists generally support a. trade restrictions. b. government management of trade. c. export subsidies. d. free international trade.
D
When a country has a comparative advantage in producing a certain good, a. the country should import that good. b. the country should produce just enough of that good for its own consumption. c. the country's opportunity cost of that good is high relative to other countries' opportunity costs of that same good. d. None of the above is correct.
D
When can two countries gain from trading two goods? a. when the first country can only produce the first good and the second country can only produce the second good b. when the first country can produce both goods, but can only produce the second good at great cost, and the second country can produce both goods, but can only produce the first good at great cost c. when the first country is better at producing both goods and the second country is worse at producing both goods d. Two countries could gain from trading two goods under all of the above conditions.
D
T/F: Goods produced abroad and sold domestically are called exports and goods produced domestically and sold abroad are called imports.
False
T/F: If a country has the comparative advantage in producing a product, then that country must also have the absolute advantage in producing that product.
False
T/F: If one producer has the absolute advantage in the production of all goods, then that same producer will have the comparative advantage in the production of all goods as well.
False
T/F: If one producer is able to produce a good at a lower opportunity cost than some other producer, then the producer with the lower opportunity cost is said to have an absolute advantage in the production of that good.
False
T/F: In an economy consisting of two people producing two goods, it is possible for one person to have the absolute advantage and the comparative advantage in both goods.
False
T/F: Opportunity cost refers to how many inputs a producer requires to produce a good.
False
T/F: Production possibilities frontiers cannot be used to illustrate tradeoffs.
False
T/F: The gains from specialization and trade are based on absolute advantage
False
T/F: A production possibilities frontier is a graph that shows the combination of outputs that an economy should produce.
Fasle
T/F: In most countries today, many goods and services consumed are imported from abroad, and many goods and services produced are exported to foreign customers.
True
T/F: Interdependence among individuals and interdependence among nations are both based on the gains from trade.
True
T/F: Opportunity cost measures the trade-off between two goods that each producer faces.
True
T/F: An economy can produce at any point on or inside its production possibilities frontier, but it cannot produce at points outside its production possibilities frontier.
True
T/F: Differences in opportunity cost allow for gains from trade.
True
T/F: If a person chooses self-sufficiency, then she can only consume what she produces.
True