Chapter 2

The ability of one producer to produce one good or service using fewer inputs than another producer is:

absolute advantage.

(Figure: PPF Nickel & Textiles) Refer to the figure. How many tons of textiles does Australia give up to produce one ton of nickel?

1/3

David sells his car, which he considers worthless, to Cameron for $200. Which of the following statements is true?

David and Cameron must have different preferences for the car.

Suppose France can produce four phones or three computers with one unit of labor, and Sweden can produce one phone or two computers with one unit of labor. If France can trade only with Sweden, then the theory of comparative advantage suggests that:

France should specialize in producing phones and import computers from Sweden.

Two countries that specialize where they have a comparative advantage and then trade with each other will experience increases in: I. wages in both countries. II. total output in both countries. III. living standards in both countries.

I, II, and III

(Table: iPhone and iPod Production) According to the table on iPhone and iPod production, which of the following is TRUE?

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

Suppose a famous baseball player, Alex Rodriguez, hires a high school student to paint his house. Which of the following is most likely TRUE?

The opportunity cost of painting a house is higher for Alex Rodriguez than for the high school student.

Specialization and trade can _____ the per-unit cost of production because _____ .

decrease; it creates economies of scale associated with large-scale production

According to the theory of comparative advantage, the reason wages are lower in China than in the United States is:

lower productivity in China.

Division of knowledge refers to:

people learning different tasks in which they specialize.