Macro Chapter 3 True or False

The opportunity cost of 1 unit of food in Korea is

1/2 of a unit of electronics.

The opportunity cost of 1 unit of food in Australia is

1/4 of a unit of electronics.

The opportunity cost of 1 unit of electronics in Korea is

2 units of food.

The opportunity cost of producing a metric ton of beef in Peru is

3 tons of fruit.

The opportunity cost of 1 unit of electronics in Australia is

4 units of food.

Which of the following statements is true?

A self-sufficient country can, at best, consume on its production possibilities frontier.

Suppose the world consists of two countries—the U.S. and Mexico. Further, suppose there are only two goods—food and clothing. Which of the following statements is true?

If the U.S. has a comparative advantage in the production of food, Mexico might also have a comparative advantage in the production of food.

Prices of electronics can be stated in terms of units of food. What is the range of prices of electronics for which both countries could gain from trade?

The price must be greater than 2 units of food but less than 4 units of food.

Which of the following statements about trade is true?

Trade can benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage.

Absolute advantage is a comparison based on productivity.

True

Comparative advantage is a comparison based on opportunity cost.

True

Comparative advantage, not absolute advantage, determines the decision to specialize in production.

True

If Germany's productivity doubles for everything it produces, this will not alter its prior pattern of specialization because it has not altered its comparative advantage.

True

Argentina has a comparative advantage in the production of

beef.

Korea should

cialize in electronics production, export electronics, and import food.

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.

Peru will export

fruit.

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.

Talented people that are the best at everything have a comparative advantage in the production of everything.

F; a low opportunity cost of producing one good implies a high opportunity cost of producing the other good.

Self-sufficiency is the best way to increase one's material welfare.

F; restricting trade eliminates gains from trade.

If a producer is self-sufficient, the production possibilities frontier is also the consumption possibilities frontier.

True

If gains from trade are based solely on comparative advantage, and if all countries have the same opportunity costs of production, then there are no gains from trade.

True

If producers have different opportunity costs of production, trade will allow them to consume outside their production possibilities frontiers.

True

The gains from trade can be measured by the increase in total production that comes from specialization.

True

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.

If an advanced country has an absolute advantage in the production of everything, it will benefit if it eliminates trade with less developed countries and becomes completely self-sufficient.

F; voluntary trade benefits all traders.

If trade benefits one country, its trading partner must be worse off due to trade.

F; voluntary trade benefits both traders.

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 2500 characters per hour into spreadsheets. Which of the following statements is true?

Joe should hire the assistant as long as he pays the assistant less than $25 per hour.

Which of the following statements about comparative advantage is true?

Australia has a comparative advantage in the production of food while Korea has a comparative advantage in the production of electronics.

Food Electronics Australia 20 5 Korea 8 4 Which of the following statements about absolute advantage is true?

Australia has an absolute advantage in the production of both food and electronics.

If Japan has an absolute advantage in the production of an item, it must also have a comparative advantage in the production of that item.

F; absolute advantage compares the quantities of inputs used in production while comparative advantage compares the opportunity costs.

When a country removes a specific import restriction, it always benefits every worker in that country.

F; it may harm those involved in that industry.

If a country's workers can produce 5 hamburgers per hour or 10 bags of French fries per hour, absent trade, the price of 1 bag of fries is 2 hamburgers.

F; the price of 1 bag of fries is 1/2 of a hamburger.