Chapter 8: Gains from Trade

When resources are organized according to the principle of comparative advantage, producers become

more specialized so they can trade and end up with more of everything.

The following table indicates the labor hours needed to produce one unit of output. Kate has a comparative advantage in_____, and Mary has a comparative advantage in_____.

sweaters/dresses

When trade is based on comparative advantage...

both trading partners end up better off

Which of the four options best represents specialization and its relationship with trade?

comparative advantage

When your employees receive work assignments based on who has the lowest opportunity cost in performing each task, the basis for the work assignments is

comparative advantage.

The table shows the tons of steel or number of computers a worker can produce per week in Germany and South Korea. Use this table to answer the question. Germany should

specialize in steel production, export steel, and import computers.

Comparative advantage explains why people

specialize and trade

Specialization will increase output when it is based on:

Comparative Advantage

If Mary can bake a cake at a lower opportunity cost than Sarah can, then:

Mary has a comparative advantage in baking cakes.

Which of the following is a TRUE statement about work assignments based on comparative advantage?

The person with the lowest opportunity cost at a task should perform it.

The table shows the units of output a worker can produce per month in Germany and South Korea. Use this table to answer the question. The opportunity cost of one computer in Germany is

4 tons of steel

To get maximum output, you should allocate each task to the person who:

Can do the task with the lowest opportunity cost

You have an absolute advantage in producing a product if you:

Can produce the product using the fewest inputs

If Bishan wants to capitalize on comparative advantage in his life, then he should:

Do more of what he is relatively good at then trade for other things

If England is said to have an absolute advantage over the United States in the production of computer chips, this means that, given the same resources,

England can produce more computer chips than the United States.

Use the data in the table to answer the question. The table provides data on how long it takes Maia and Juanita to mow the lawn and weed the flower beds. Who has a comparative advantage in mowing lawns?

Juanita because she has a lower opportunity cost

The main role of markets is:

Reallocating resources to better use

Which term best describes the situation that, relative to England, France can produce beef at a lower cost of production (i.e., can produce beef using fewer inputs)?

absolute advantage

You have a comparative advantage if you can complete a task:

at a lower opportunity cost than anyone else

The person who has an absolute advantage in a task

is the one who is best at the task

The following table shows the units of output a worker can produce per month in Germany and South Korea. Use this table to answer the following question. The opportunity cost of one ton of steel in Germany is... The opportunity cost of one ton of steel in South Korea is... Which country has a comparative advantage in steel production?

one-quarter of a PC./one-half of a PC./Germany

(Table: Four persons) The table lists the minutes that it will take four persons to wash a car and to sort and fold a load of laundry. Use the data to answer the question. What is Junko's opportunity cost for washing a car?

2.4 loads of laundry will not be sorted and folded.

Ang can mow the lawn in two hours. Bill takes three hours to mow the same lawn. What can you conclude from this information?

Ang has an absolute advantage over Bill in mowing the lawn. b. Bill has an absolute advantage over Ang in mowing the lawn.