ECON 1500--Chapter 2

Trade:

is based on voluntary exchange

The principle of increasing marginal opportunity cost does not hold in which of the following cases?

All inputs are equally useful in the production of all goods.

Adam Smith was of the opinion that which of the following was a source of national wealth? a) a policy of laissez-faire b) specialization based on comparative advantage c) trade and markets

All of the above

Which of the following play a role in determining where oranges will be produced in the U.S.? a) self-interest b) economic decision rule c) Adam Smith's Invisible Hand

All of the above are correct

If President Biden argues that trade with China is killing the U.S. economy, he: a) probably doesn't appreciate the concept of comparative advantage b) is wrong if he means the U.S. as a whole is hurt by trade c) He may be correct if he means that trade with China is hurting some U.S. workers

All of the above is correct

Which explains why average income per capita in the world started to increase rapidly around 1750? a) broader adoption of specialization and trade b) broader adoption of markets as the system for answering the questions of what, how, and for whom. c) smarter kings and queens

Both A and B are correct.

Why do farmers in Idaho produce potatoes not oranges? a) It is in their self interest to do so b) Tradition c) Potato production is profitable. Oranges would not be.

Both A and C are correct.

The pattern of specialization and trade that happens between Idaho and Florida: a) is based on social forces b) is based on laissez-faire c) requires markets

Both B and C are correct

If both Utah and Colorado specialize in the good in which it has a comparative advantage and then trade with the other state, a) joint production will decrease b) joint consumption will increase c) joint production will increase

Both B and C are correct.

Which of the following is/are true concerning trade and specialization. For two states to benefit from specialization and trade?

Both differences in goods and resources are required.

California will have a comparative advantage in producing oranges compared to Alaska if,

California has a lower opportunity cost of producing oranges.

Why doesn't Utah produce cars?

Opportunity cost is too high

Which of the following best describes the source of comparative advantage among individuals?

Individuals have different skills and different goods require different skills

Which of the following will shift the PPC out?

More labor

Two countries that specialize their production based on comparative advantage and then trade with each other will be able to:

both produce and consume more.

If there were decreasing marginal opportunity costs, the production possibility curve would be:

bowed in

A point outside of an existing PPC:

could become possible with better technology.

If the hourly wage of U.S. workers is $16, and the hourly wage of Mexican workers is $4, and U.S. workers produce 5 times as much output per hour as Mexican workers, then, other things equal, it would be efficient to locate production facilities in:

the United States since the cost per unit of output will be lower.

The text attributes the growth of economies over the last 200 years largely to:

the development of markets.

Countries gain from trade by producing:

the goods they can produce at the lowest opportunity cost.