ECON 2200 chapter 3

When Mateo and Sophia produce efficiently and make a mutually beneficial trade based on comparative advantage, a. Mateo and Sophia both wash more. b. Mateo mows more and Sophia washes more. c. Mateo and Sophia both mow more. d. Mateo washes more and Sophia mows more.

b. Mateo mows more and Sophia washes more.

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 consumes outside its production possibilities frontier. c. A self-sufficient country at best can consume on its production possibilities frontier. d. Self-sufficiency is the road to prosperity for most countries.

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

In an hour, Mateo can wash 2 cars or mow 1 lawn, and Sophia can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in lawn mowing? a. Sophia in washing, neither in mowing b. Mateo in washing, Sophia in mowing c. Sophia in washing, Mateo in mowing d. Mateo in washing, neither in mowing

a. Sophia in washing, neither in mowing Car Washing Mateo: 2 cars/hr Sophia: 3cars/hr *more efficient* Lawn Mowing Mateo: 1 lawn/hr Sophia: 1 lawn/hr *same amount = NO absolute advantage*

Kayla can cook dinner in 30 minutes and wash the laundry in 20 minutes. Her roommate takes twice as long to do each task. How should the roommates allocate the work? a. There are no gains from trade in this situation. b. Kayla should do more of the washing based on her comparative advantage. c. Kayla should do more of the washing based on her absolute advantage.

a. There are no gains from trade in this situation. Cooking Dinner Kayla: 30/20 = 1.5 Roommate: 60/40 = 1.5 *same opportunity cost = NO comparative advantage* Washing Laundry Kayla: 20/30 = 0.667 Roomate: 40/60 = 0.667 *same opportunity cost = NO comparative advantage*

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

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

A nation will typically import those goods in which a. other nations have a comparative advantage. b. the nation has an absolute advantage. c. other nations have an absolute advantage. d. the nation has a comparative advantage.

a. other nations have a comparative advantage.

Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is no trade, a. the opportunity cost of 1 watch is 1/4 of a ring. b. the opportunity cost of 1 watch is 4 rings. c. the opportunity cost of 1 watch is 1/3 of a ring. d. the opportunity cost of 1 watch is 3 rings. e. the opportunity cost of 1 watch is 12 rings.

d. the opportunity cost of 1 watch is 3 rings. 4 watches; 12 rings 1 watch; 3 rings

The following shows the units of output a worker can produce per month in Australia and Korea. Food Electronics Australia: 20 Australia: 5 Korea: 8 Korea: 4 The opportunity cost of 1 unit of food in Australia is a. 4 units of electronics. b. 5 units of electronics. c. 1/5 of a unit of electronics. d. 1/4 of a unit of electronics.

d. 1/4 of a unit of electronics. 20 units of food; 5 units of electronic 1 unit of food; 5/20= 0.25 = 1/4 unit of electronics

The following shows the units of output a worker can produce per month in Australia and Korea. Food Electronics Australia: 20 Australia: 5 Korea: 8 Korea: 4 The opportunity cost of 1 unit of electronics in Australia is a. 5 units of food. b. 1/5 of a unit of food. c. 1/4 of a unit of food. d. 4 units of food.

d. 4 units of food. 5 units of electronics; 20 units of food 1 unit of electronic; 20/5 = 4 units of food

The following shows the units of output a worker can produce per month in Australia and Korea. Food Electronics Australia: 20 Australia: 5 Korea: 8 Korea: 4 The opportunity cost of 1 unit of electronics in Korea is a. 2 units of food. b. 1/4 of a unit of food. c. 1/2 of a unit of food. d. 4 units of food.

a. 2 units of food. 4 units of electronics; 8 units of food 1 unit of electronic; 8/4 = 2 units of food

The following shows the units of output a worker can produce per month in Australia and Korea. Food Electronics Australia: 20 Australia: 5 Korea: 8 Korea: 4 Which of the following statements about comparative advantage is true? a. Australia has a comparative advantage in the production of food while Korea has a comparative advantage in the production of electronics. b. Korea has a comparative advantage in the production of food while Australia has a comparative advantage in the production of electronics. c. Australia has a comparative advantage in the production of both food and electronics. d. Korea has a comparative advantage in the production of both food and electronics. e. Neither country has a comparative advantage.

a. Australia has a comparative advantage in the production of food while Korea has a comparative advantage in the production of electronics. Food Australia: 20 units of food; 5 units of electronics 1 unit of food; 5/20 = 1/4 unit of electronics *lower opportunity cost = comparative advantage* Korea: 8 units of food; 4 units of electronics 1 unit of food; 4/8 = 1/2 unit of electronics Electronics Australia: 5 units of electronics; 20 units of food 1 unit of electronic; 20/5 = 4 units of food Korea: 4 units of electronics; 8 units of food 1 unit of electronic; 8/4 = 2 units of food *lower opportunity cost = comparative advantage*

In an hour, Mateo can wash 2 cars or mow 1 lawn, and Sophia can wash 3 cars or mow 1 lawn. Who has the comparative advantage in car washing, and who has the comparative advantage in lawn mowing? a. Sophia in washing, Mateo in mowing b. Mateo in washing, neither in mowing c. Mateo in washing, Sophia in mowing d. Sophia in washing, neither in mowing

a. Sophia in washing, Mateo in mowing

Before Frank and Ruby engage in trade, each of them a. consumes at a point on his or her production possibilities frontier. b. consumes at a point inside his or her production possibilities frontier. c. consumes at a point outside his or her production possibilities frontier. d. consumes the same amounts of meat and potatoes as the other.

a. consumes at a point on his or her production possibilities frontier.

According to the principle of comparative advantage, a. countries should specialize in the production of goods for which they have a lower opportunity cost of production than their trading partners. b. countries should specialize in the production of goods that they enjoy consuming. c. countries with a comparative advantage in the production of every good need not specialize. d. countries should specialize in the production of goods for which they use fewer resources in production than their trading partners. Hide Feedback Correct

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

If a nation has a comparative advantage in the production of a good, a. it can produce that good at a lower opportunity cost than its trading partner. b. it can produce that good using fewer resources than its trading partner. c. it can benefit by restricting imports of that good. d. it must be the only country with the ability to produce that good. e. none of the above is true.

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

The following shows the units of output a worker can produce per month in Australia and Korea. Food Electronics Australia: 20 Australia: 5 Korea: 8 Korea: 4 The opportunity cost of 1 unit of food in Korea is a. 4 units of electronics. b. 1/2 of a unit of electronics. c. 1/4 of a unit of electronics. d. 2 units of electronics.

b. 1/2 of a unit of electronics. 8 units of food; 4 units of electronics 1 unit of food = 4/8 = 0.5 = 1/2 units of electronics

Suppose that in the United States, producing an aircraft takes 10,000 hours of labor and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor and producing a shirt takes 4 hours of labor. What will these nations trade? a. China will export aircraft, and the United States will export shirts. b. China will export shirts, and the United States will export aircraft. c. Both nations will export shirts. d. There are no gains from trade in this situation.

b. China will export shirts, and the United States will export aircraft. Aircraft US: = 10,000/2 = 5,000 *lower opportunity cost* China: 40,000/4 = 10,000 Shirts US: 2/10,000 = 0.002 China: 4/40,000 = 00001 *lower opportunity cost*

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. 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.

After Frank and Ruby engage in trade, each of them a. consumes at a point on his or her production possibilities frontier. b. consumes at a point outside his or her production possibilities frontier. c. consumes the same amounts of meat and potatoes as the other. d. consumes at a point inside his or her production possibilities frontier.

b. consumes at a point outside his or her production possibilities frontier.

If a nation has an absolute advantage in the production of a good, a. it can produce that good at a lower opportunity cost than its trading partner. b. it can produce that good using fewer resources than its trading partner. c. it can benefit by restricting imports of that good. d. it will specialize in the production of that good and export it. e. none of the above is true.

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

The following shows the units of output a worker can produce per month in Australia and Korea. Food Electronics Australia: 20 Australia: 5 Korea: 8 Korea: 4 Korea should a. specialize in food production, export food, and import electronics. b. specialize in electronics production, export electronics, and import food. c. produce neither good because it has an absolute disadvantage in the production of both goods. d. produce both goods because neither country has a comparative advantage.

b. specialize in electronics production, export electronics, and import food. Food Australia: 20 units of food; 5 units of electronics 1 unit of food; 5/20 = 1/4 unit of electronics *lower opportunity cost = comparative advantage* Korea: 8 units of food; 4 units of electronics 1 unit of food; 4/8 = 1/2 unit of electronics Electronics Australia: 5 units of electronics; 20 units of food 1 unit of electronic; 20/5 = 4 units of food Korea: 4 units of electronics; 8 units of food 1 unit of electronic; 8/4 = 2 units of food *lower opportunity cost = comparative advantage*

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. Joe should hire the assistant as long as he pays the assistant less than $25 per hour. 2,500/$100 = $25

The following shows the units of output a worker can produce per month in Australia and Korea. Food Electronics Australia: 20 Australia: 5 Korea: 8 Korea: 4 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? a. The price must be greater than 4 units of food but less than 5 units of food. b. The price must be greater than 1/5 of a unit of food but less than 1/4 of a unit of food. c. The price must be greater than 2 units of food but less than 4 units of food. d. The price must be greater than 1/4 of a unit of food but less than 1/2 of a unit of food.

c. The price must be greater than 2 units of food but less than 4 units of food. Electronics Australia: 5 units of electronics; 20 units of food 1 unit of electronic; 20/5 = 4 units of food Korea: 4 units of electronics; 8 units of food 1 unit of electronic; 8/4 = 2 units of food

Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there is no trade, a. the domestic price of 1 ring is 3 watches. b. the domestic price of 1 ring is 12 watches. c. the domestic price of 1 ring is 1/3 of a watch. d. the domestic price of 1 ring is 1/4 of a watch. e. the domestic price of 1 ring is 4 watches.

c. the domestic price of 1 ring is 1/3 of a watch. watches: 4/12 = 0.333 ring: 12/4 = 3

The following shows the units of output a worker can produce per month in Australia and Korea. Food Electronics Australia: 20 Australia: 5 Korea: 8 Korea: 4 Which of the following statements about absolute advantage is true? a. Korea has an absolute advantage in the production of both food and electronics. b. Australia has an absolute advantage in the production of food while Korea has an absolute advantage in the production of electronics. c. Korea has an absolute advantage in the production of food while Australia has an absolute advantage in the production of electronics. d. Australia has an absolute advantage in the production of both food and electronics.

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