Chapter 3: Gains from Trade, Comparative Advantage

Absolute advantage is found by comparing different producers' a. opportunity costs. b. payments to land, labor, and capital. c. input requirements per unit of output. d. locational and logistical circumstances.

c

25. A popular celebrity that is paid highly for her time should probably not mow her own lawn because a. her opportunity cost of mowing her lawn is higher than the cost of paying someone to mow it for her. b. she has a comparative advantage in mowing her lawn relative to a landscaping service. c. she has an absolute advantage in mowing her lawn relative to a landscaping service. d. she might sprain her ankle.

a

Both Ryan and Sachi produce ankle bracelets and rings. However, Ryan is better at producing both goods. In this case, trade could a. benefit both Sachi and Ryan. b. benefit Sachi, but not Ryan. c. benefit Ryan, but not Sachi. d. benefit neither Sachi nor Ryan.

a

Trade between countries a. allows each country to consume at a point outside its production possibilities frontier. b. limits a country's ability to produce goods and services on its own. c. must benefit both countries equally; otherwise, trade is not mutually beneficial. d. can best be understood by examining the countries' absolute advantages.

a

The principle of comparative advantage does not provide answers to certain questions. One of those questions is a. Do specialization and trade benefit more than one party to a trade? b. Is it absolute advantage or comparative advantage that really matters? c. How are the gains from trade shared among the parties to a trade? d. Is it possible for specialization and trade to increase total output of traded goods?

c

Refer to Figure 3-3. If Tanek and Barb each divide their time equally between the production of tacos and burritos, then total production is a. 200 tacos and 150 burritos. b. 400 tacos and 250 burritos. c. 400 tacos and 300 burritos. d. 800 tacos and 500 burritos.

b

Refer to Figure 3-3. If Tanek must work 0.2 hour to produce each taco, then his production possibilities frontier is based on how many hours of work? a. 40 hours b. 80 hours c. 400 hours d. 2000 hours

b

Refer to Figure 3-3. If the production possibilities frontier shown for Tanek is for 120 hours of production, then how long does it take Tanek to make one burrito? a. 0.1 hour b. 0.4 hour c. 3 hours d. 2.5 hours

b

Refer to Table 3-2. Assume that England and France each has 30 labor hours available. If each country divides its time equally between the production of cheese and wine, then total production is a. 30 units of pastrami and 18 units of milk. b. 18 units of pastrami and 11.25 units of milk. c. 30 units of pastrami and 11.25 units of milk. d. 18 units of pastrami and 30 units of milk.

b

The most obvious benefit of specialization and trade is that they allow us to a. work more hours per week than we otherwise would be able to work. b. consume more goods than we otherwise would be able to consume. c. spend more money on goods that are beneficial to society, and less money on goods that are harmful to society. d. consume more goods by forcing people in other countries to consume fewer goods.

b

Trade can make everybody better off because it a. increases cooperation among nations. b. allows people to specialize according to comparative advantage. c. requires some workers in an economy to be retrained. d. reduces competition among domestic companies.

b

When an economist points out that you and millions of other people are interdependent, she is referring to the fact that we all a. rely upon the government to provide us with the basic necessities of life. b. rely upon one another for the goods and services we consume. c. have similar tastes and abilities. d. are concerned about one another's well-being.

b

A gardener has the ability to grow either apples or pears or some combination of the two. Given no other information, it follows that the gardener's opportunity cost of a pound of apples multiplied by his opportunity cost of a pound of pears a. is equal to 0. b. is between 0 and 1. c. is equal to 1. d. is greater than 1.

c

If Mike can produce more donuts in one day than Sue can produce in one day, then a. Mike has a comparative advantage in the production of donuts. b. Sue has a comparative advantage in the production of donuts. c. Mike has an absolute advantage in the production of donuts. d. Sue has an absolute advantage in the production of donuts.

c

Refer to Figure 3-3. If Tanek and Barb both spend all of their time producing burritos, then total production is a. 0 tacos and 400 burritos. b. 400 tacos and 250 burritos. c. 0 tacos and 500 burritos. d. 800 tacos and 500 burritos.

c

Refer to Table 3-3. Assume that Aruba and Iceland each has 80 labor hours available. If each country divides its time equally between the production of coolers and radios, then total production is a. 60 coolers and 80 radios. b. 18 coolers and 40 radios. c. 60 coolers and 18 radios. d. 18 coolers and 60 radios.

c

Refer to Table 3-3. Which of the following represents Aruba's production possibilities frontier when 100 labor hours are available? a. ​ b. ​ c. ​ d. ​

c

The gains from trade are a. evident in economic models, but seldom observed in the real world. b. evident in the real world, but impossible to capture in economic models. c. a result of more efficient resource allocation than would be observed in the absence of trade. d. based on the principle of absolute advantage.

c

The opportunity cost of an item is a. the number of hours that one must work in order to buy one unit of the item. b. always less than the dollar value of the item. c. what you give up to get that item. d. always greater than the cost of producing the item.

c

21. Which of the following is not correct? a. The producer who requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good. b. The producer who gives up less of other goods to produce Good X has the smaller opportunity cost of producing Good X. c. The producer who has the smaller opportunity cost of producing a good is said to have a comparative advantage in producing that good. d. The gains from specialization and trade are based not on comparative advantage but on absolute advantage.

d

Consider two individuals, Tanek and Kalene each of whom knits sweaters and makes hotdogs, respectively. The gains from trade between Tanek and Kalene are most obvious in which of the following cases? a. Tanek is very good at knitting sweaters and at making hotdogs, but Kalene's skills in both of these activities are very poor. b. Tanek and Kalene both are very good at making hotdogs, but neither has the necessary skills to knit sweaters. c. Tanek's cooking and knitting skills are very poor, and Kalene's cooking and knitting skills are also very poor. d. Tanek's skills are such that he can only knit sweaters, and Kalene's skills are such that she can only make hotdogs.

d

If China is capable of producing either shoes or toy trains or some combination of the two, then a. China should specialize in the product in which it has an absolute advantage. b. it would be impossible for China to have an absolute advantage over another country in both products. c. it would be difficult for China to benefit from trade with another country if China is efficient in the production of both goods. d. China's opportunity cost of shoes is the inverse of its opportunity cost of toy trains.

d

Refer to Figure 3-3. Tanek's opportunity cost of one burrito is a. 3/4 taco and Barb's opportunity cost of one burrito is 1/2 taco. b. 3/4 taco and Barb's opportunity cost of one burrito is 2 tacos. c. 4/3 tacos and Barb's opportunity cost of one burrito is 1/2 taco. d. 4/3 tacos and Barb's opportunity cost of one burrito is 2 tacos.

d

Refer to Table 3-2. Which of the following combinations of pastrami and milk could France produce in 30 hours? a. 7.5 units of pastrami and 30 units of milk b. 3 units of pastrami and 30 units of milk c. 30 units of pastrami and 7.5 units of milk d. 3 units of pastrami and 7.5 units of milk

d

Suppose there are only two people in the world. Each person's production possibilities frontier also represents his or her consumption possibilities when a. neither person faces trade-off. b. the frontiers are straight lines. c. the frontiers are bowed out. d. they choose not to trade with one another.

d