econ chap 3

Joe is a tax accountant. He receives $100 per hour doing tax returns. He can type 10,000 characters per hour into spreadsheets. He can hire an assistant who types 2,500 characters per hour into spreadsheets. Which of the following statements is true? a. Joe should not hire an assistant because the assistant cannot type as fast as he can. b. Joe should hire the assistant as long as he pays the assistant less than $100 per hour. c. Joe should hire the assistant as long as he pays the assistant less than $25 per hour. d. None of the above is true

C

If a nation has a comparative advantage in the production of a good,

it can produce that good at a lower opportunity cost than its trading partner.

If a nation has an absolute advantage in the production of a good,

it can produce that good using fewer resources than its trading partner.

According to the principle of comparative advantage,

countries should specialize in the production of goods for which they have a lower opportunity cost of production than their trading partners.

Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is no trade,

the domestic price of 1 ring is 1/3 of a watch.

Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is no trade,

the opportunity cost of 1 watch is 3 rings.

Suppose the world consists of two countries—the United States and Mexico. Furthermore, suppose there are only two goods—food and clothing. Which of the following statements is true? a. If the United States has an absolute advantage in the production of food, then Mexico must have an absolute advantage in the production of clothing. b. If the United States has a comparative advantage in the production of food, then Mexico must have a comparative advantage in the production of clothing. c. If the United States has a comparative advantage in the production of food, it must also have a comparative advantage in the production of clothing. d. If the United States has a comparative advantage in the production of food, Mexico might also have a comparative advantage in the production of food. e. None of the above is true.

B

Which of the following statements is true? a. Only countries with an absolute advantage in the production of every good should strive to be self-sufficient. b. A self-sufficient country at best can consume on its production possibilities frontier. c. Self-sufficiency is the road to prosperity for most countries. d. A self-sufficient country consumes outside its production possibilities frontier.

B

Which of the following statements about trade is true? a. Trade can benefit everyone in society because it allows people to specialize in activities in which they have an absolute advantage. b. Unrestricted international trade benefits every person in a country equally. c. People that are skilled at all activities cannot benefit from trade. d. Trade can benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage.

D