Macroeconomics Chapter 2
Which of the following statements is true?
A nation cannot have a comparative advantage in the production of every good
The idea that something is economic on a microeconomic level, is similarly economic on a macroeconomic level, is attributed to _____.
Adam Smith
The United States can produce 20 strawberries or 80 apples, while Canada can produce 15 strawberries or 5 apples. Which of the following describes what will happen if these two countries trade with each other?
Both countries will benefit from trading
When countries specialize in the goods in which they have a comparative advantage, which of the following is true?
Both countries will experience gains from trade
Country A can either produce 10 cars or 10 computers, while country B can produce either 4 cars or 8 computers. Based on this information, which of the following comparisons is TRUE?
Country B has a comparative advantage in computers
Assume that there are only two countries, Country A and Country B, producing only two goods, corn cereal and designer jeans. The table here shows the production possibilities for these two countries. Which of the following statements is correct?
Country B has an absolute advantage in both goods
Country A's opportunity cost of producing 1 ton of corn is 5 tons of wheat, while Country B's opportunity cost of producing 1 ton of corn is 1/3 of a ton of wheat. Which of the following statements is true?
Country B should specialize in producing corn, while Country A should specialize in producing wheat
The table here shows the labor hours necessary to produce one unit of two goods, salmon and coconut creme pies, in two countries. If labor is the only input used, which of the following statements is true?
Country C has an absolute advantage in the production of both goods
Country X has a lower opportunity cost of producing computers than country Y, while country Y has a lower opportunity cost in producing wine. Based on the theory of comparative advantage, what should they produce?
Country X should produce computers while country Y should produce wine, and they should trade these products with each other
Which of the following are problems that all economies face?
How to use scarce resources to satisfy unlimited wants, how to decide what goods and services to produce, how much to produce, and for whom to produce
What does it mean for a nation to have an absolute advantage in the production of a good?
It can produce the good more efficiently than another nation
Which of the following quotes is attributed to Adam Smith?
It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy
What happens if a nation doesn't have an absolute advantage in producing anything?
It will always have a comparative advantage in something
Which of the following ideas is attributed to David Ricardo?
Nations should specialize in the production of the goods in which they have the lowest opportunity cost, and trade with other nations
If Sally can produce 1 term paper or 4 cookies in one hour, and Adam can produce 2 term papers or 1 cookie in the same amount of time, which of these statements is true?
Sally has a comparative advantage in cookies, while Adam has a comparative advantage in term papers
The opportunity cost to produce a computer in Japan is $100, the opportunity cost to produce it in China is $75, while the opportunity cost to produce it in Slovakia is $57. Based on the theory of comparative advantage, where should the computers be produced?
Slovakia
A country has accepted that it needs to work based on the theory of comparative advantage. It has started trading with another country and completely stopped producing everything except one product. It now has a larger quantity of goods and services that can be produced, improved its productivity and uses resources more efficiently. Which of the following BEST explains the country's gains?
Specialization
What is central to the theory of comparative advantages?
Specialization and producing products where you have a lower opportunity cost
A person or nation that has a comparative advantage in the production of a good, should _____.
Specialize in the production of that good
Which of the following is NOT a benefit of specialization and exchange?
Taxes will be reduced
Tom is an economics teacher at a university. He strongly believes that you should produce a good or service only if you can produce more than anyone else in the given amount of time. What idea does this BEST conforms to?
The theory of absolute advantage
Two countries, Liberland and Finance Island, have decided to start trading. Liberland has a lower opportunity cost of producing fish, while Finance Island has a lower opportunity cost of producing potatoes. Based on the law of comparative advantages, what will be the likely result?
Their output will increase, and they will be more efficient when they focus on specialization
According to the two production possibility curves shown, Country A should specialize in the production of which of the following?
Wheat
According to the Law of Comparative Advantage, where should a good be produced?
Where opportunity costs are the lowest
