Chapter 3

Which of the following statements is not correct?

Absolute advantage is the driving force of specialization.

Which of the following statements about comparative advantage is not true?

Comparative advantage is determined by which person or group of persons can produce a given quantity of a good using the fewest resources.

If it takes U.S. workers fewer hours to produce every good than it takes German workers, the United States cannot gain from trade with Germany.

F

Mark is a computer company executive, earning $200 per hour managing the company and promoting its products. His daughter Regan is a high school student, earning $6 per hour helping her grandmother on the farm. Mark's computer is broken. He can repair it himself in one hour. Regan can repair it in 10 hours. Mark's opportunity cost of repairing the computer is lower than Regan's.

F

The producer who has the smaller opportunity cost of producing a good is said to have an absolute advantage in producing that good.

F

The principle of comparative advantage does not provide answers to certain questions. One of those questions is as follows

How are the gains from trade shared among the parties to a trade?

As long as two people have different opportunity costs, each can gain from trade, since trade allows each person to obtain a good at a price lower than his or her opportunity cost.

T

Differences in opportunity cost allow for gains from trade

T

For a country producing two goods, the opportunity cost of one good will be the inverse of the opportunity cost of the other good.

T

International trade may make some individuals in a nation better off, while other individuals are made worse off.

T

Trade allows a country to consume outside its production possibilities frontier.

T

Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. Also assume that Germany has an absolute advantage in both fish and cars. If these two countries specialize and trade so as to maximize the benefits of specialization and trade,

a. the two countries' combined output of both goods will be higher than it would be in the absence of trade. b. Greece will produce more fish than it would produce in the absence of trade. c. Germany will produce more cars than it would produce in the absence of trade. d. All of the above are correct

The difference between production possibilities frontiers that are bowed out and those that are straight lines is that

bowed-out production possibilities frontiers illustrate increasing opportunity cost, whereas straight-line production possibilities frontiers illustrate constant opportunity cost.

Total output in an economy increases when each person specializes because

each person spends more time producing that product in which he or she has a comparative advantage

A production possibilities frontier will be a straight line if

increasing the production of one good by x units entails a constant opportunity cost in terms of the other good.

Absolute advantage is found by comparing different producers'

input requirements per unit of output.

Consider a shoemaker and a vegetable farmer. Potentially, trade could benefit both individuals if

the shoemaker can produce only shoes and the vegetable farmer can produce only vegetables. b. the shoemaker is capable of growing vegetables, but he is not very good at it. c. the vegetable farmer is better at growing vegetables and better at making shoes than the shoemaker. d. All of the above are correct.

Suppose a gardener produces both green beans and corn in her garden. If the opportunity cost of one bushel of corn is 3/5 bushel of green beans, then the opportunity cost of 1 bushel of green beans is

5/3 bushels of corn.