Deck 3: Exchange and Markets

Question 1

Table 3.1

Based on the data in Table 3.1, if Jesse and April choose to specialize and trade, then

A) April will specialize in painting kites and trade kites for snowboards.
B) April will specialize in painting snowboards and trade snowboards for kites.
C) Jesse will specialize in painting snowboards and trade snowboards for kites.
D) None of the above; specialization and trade are not beneficial for Jesse and April.

Answer 1

April will specialize in painting snowboards and trade snowboards for kites.

Question 2

Table 3.1

Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 3.1 shows how much of each good Jesse and April can paint in one hour. April's opportunity cost of painting one snowboard is painting

A) 1.5 kites.
B) 3 kites.
C) 4 kites.
D) 12 kites.

Answer 2

4 kites.

Question 3

Table 3.1

Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 3.1 shows how much of each good Jesse and April can paint in one hour. Jesse's opportunity cost of painting one kite is painting

A) 1/12 of a snowboard.
B) 1/8 of a snowboard.
C) 1/3 of a snowboard.
D) 3 snowboards.

Answer 3

1/8 of a snowboard.

Question 4

Table 3.1

Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 3.1 shows how much of each good Jesse and April can paint in one hour. April's opportunity cost of painting one kite is painting

A) 1/12 of a snowboard.
B) 1/4 of a snowboard.
C) 3 snowboards.
D) 4 snowboards.

Question 5

Table 3.3

Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel's and Mia's hourly productivity are shown in Table 3.3. Mia's opportunity cost of producing one bandana is

A) 1/3 of a hair pin.
B) 2.5 hair pins.
C) 3 hair pins.
D) 9 hair pins.

Question 6

Table 3.3

Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel's and Mia's hourly productivity are shown in Table 3.3. Nigel's opportunity cost of producing one bandana is

A) 1/4 of a hair pin.
B) 2/5 of a hair pin.
C) 2.5 hair pins.
D) 4 hair pins.

Question 7

Table 3.3

Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel's and Mia's hourly productivity are shown in Table 3.3. Nigel's opportunity cost of producing one hair pin is

A) 1/3 of a bandana.
B) 2.5 bandanas.
C) 3 bandanas.
D) 10 bandanas.

Question 8

Table 3.1

Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 3.1 shows how much of each good Jesse and April can paint in one hour. Jesse's opportunity cost of painting one snowboard is painting

A) 1/8 of a kite.
B) 1.5 kites.
C) 8 kites.
D) 12 kites.

Question 9

Table 3.2

Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 3.2 shows how much of each good Jesse and April can paint in one hour. Which of the following is true?

A) Jesse has an absolute advantage in painting kites but not snowboards.
B) Jesse has an absolute advantage in painting snowboards but not kites.
C) Jesse has an absolute advantage in painting both goods.
D) Jesse has an absolute advantage in painting neither good.

Question 10

Markets exist

A) so people can buy and sell things.
B) because people are self-sufficient.
C) because each person specializes in the production of many products.
D) as an arrangement where buyers do not interact with sellers.

Question 11

Table 3.1

Based on the data in Table 3.1

A) April should specialize in painting kites and trade for snowboards.
B) April should specialize in painting snowboards and trade for kites.
C) Jesse should specialize in both goods.
D) April should specialize in both goods.

Question 12

An individual or country that has a comparative advantage in the production of one good

A) must have an absolute advantage in the good's production.
B) must not have an absolute advantage in the good's production.
C) may or may not have an absolute advantage in the good's production.
D) must not have an absolute advantage in the production of the other good.

Question 13

To explore the rationale for specialization, economists use the

A) marginal principle.
B) principle of opportunity cost.
C) real-nominal principle.
D) principle of marginal exchange.

Question 14

Table 3.2

Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 3.2 shows how much of each good Jesse and April can paint in one hour. Which of the following is true?

A) April has a comparative advantage in painting kites but not snowboards.
B) April has a comparative advantage in painting snowboards but not kites.
C) April has a comparative advantage in painting both goods.
D) April does not have a comparative advantage in painting either good.

Question 15

Table 3.1

Based on the data in Table 3.1

A) Jesse should specialize in painting kites and trade for snowboards.
B) Jesse should specialize in painting snowboards and trade for kites.
C) April should specialize in both goods.
D) Jesse should specialize in both goods.

Question 16

Table 3.1

The ability of one person or nation to produce a good at a lower opportunity cost than another is called a(n)

A) market advantage.
B) comparative advantage.
C) absolute advantage.
D) specialization advantage.

Question 17

Table 3.2

Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 3.2 shows how much of each good Jesse and April can paint in one hour. Which of the following is true?

A) April has an absolute advantage in painting kites but not snowboards.
B) April has an absolute advantage in painting snowboards but not kites.
C) April has an absolute advantage in painting both goods.
D) April does not have an absolute advantage in painting either good.

Question 18

Table 3.3

Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel's and Mia's hourly productivity are shown in Table 3.3. Mia's opportunity cost of producing one hair pin is

A) 1/3 of a bandana.
B) 2.5 bandanas.
C) 3 bandanas.
D) 10 bandanas.

Question 19

Table 3.1

The ability of one person or nation to produce a good at a lower absolute cost than another is called a(n)

A) market advantage.
B) comparative advantage.
C) absolute advantage.
D) specialization advantage.

Question 20

Table 3.2

Consider two individuals, Jesse and April, who hand paint kites and snowboards. Table 3.2 shows how much of each good Jesse and April can paint in one hour. Which of the following is true?

A) April has both an absolute and comparative advantage in painting kites.
B) April has both an absolute and comparative advantage in painting snowboards.
C) April has neither an absolute nor comparative advantage in painting kites.
D) April has neither an absolute nor a comparative advantage in painting snowboards.

Question 21

Table 3.4

Consider two individuals, Artie and Deena, who produce wind chimes and sun dials. Artie's and Deena's weekly productivity are shown in Table 3.4. Which of the following is true?

A) Artie has a comparative advantage in producing wind chimes but not sun dials.
B) Artie has a comparative advantage in producing sun dials but not wind chimes.
C) Artie has a comparative advantage in producing both goods.
D) Artie does not have a comparative advantage in producing either good.

Question 22

Table 3.3

Jimbo has a comparative advantage over Ned in producing a good if

A) Jimbo can produce more of the good than Ned can in a given time period.
B) Jimbo has a lower opportunity cost of producing the good than does Ned.
C) Jimbo has to trade off more than Ned does to produce the good.
D) Jimbo has a higher opportunity cost of producing the good than does Ned.

Question 23

Table 3.3

Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel's and Mia's hourly productivity are shown in Table 3.3. Which of the following is true?

A) Nigel has an absolute advantage in producing hair pins but not bandanas.
B) Nigel has an absolute advantage in producing bandanas but not hair pins.
C) Nigel has an absolute advantage in producing both goods.
D) Nigel does not have an absolute advantage in producing either good.

Question 24

A specialized worker doesn't spend time switching from one task to another. This source of productivity increase is called

A) continuity.
B) innovation.
C) functionality.
D) repetition.

Question 25

Table 3.4

Consider two individuals, Artie and Deena, who produce wind chimes and sun dials. Artie's and Deena's weekly productivity are shown in Table 3.4. Which of the following is true?

A) Deena has an absolute advantage in producing both goods, and a comparative advantage in producing wind chimes.
B) Deena has an absolute advantage in producing both goods, and a comparative advantage in producing sun dials.
C) Deena has an absolute and a comparative advantage in producing both goods.
D) Deena has an absolute advantage in producing both goods, but no one has a comparative advantage in producing either good.

Question 26

Table 3.3

Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel's and Mia's hourly productivity are shown in Table 3.3. Which of the following is true?

A) Nigel has both an absolute and comparative advantage in hair pin production.
B) Nigel has both an absolute and comparative advantage in bandana production.
C) Nigel has neither an absolute nor comparative advantage in hair pin production.
D) Nigel has neither an absolute nor a comparative advantage in bandana production.

Question 27

For country A, an export is a good produced in

A) country B and purchased by residents of country B.
B) country B and purchased by residents of country A.
C) country A and purchased by residents of country B.
D) country A and purchased by residents of country A.

Question 28

A rich nation will trade with a poor nation because the

A) rich nation has the absolute advantage in producing all products.
B) poor nation has the absolute advantage in producing all products.
C) poor nation has the comparative advantage in producing a product.
D) rich nation has the comparative advantage in producing all products.

Question 29

Specialization and trade exploit differences in productivity across workers and

A) only benefit the exporter.
B) only benefit the importer.
C) make everyone better off.
D) make everyone worse off.

Question 30

Table 3.3

Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel's and Mia's hourly productivity are shown in Table 3.3. Which of the following is true?

A) Mia has an absolute advantage in producing hair pins but not bandanas.
B) Mia has an absolute advantage in producing bandanas but not hair pins.
C) Mia has an absolute advantage in producing both goods.
D) Mia does not have an absolute advantage in producing either good.

Question 31

Differences in innate skills and the benefits associated with the division of labor result in

A) differences in productivity.
B) absolute advantage.
C) self-sufficiency.
D) diminishing returns.

Question 32

An export is a product

A) produced in and purchased by residents of the home country.
B) produced in and sold to the residents of a foreign country.
C) produced in the home country and sold in another country.
D) produced in a foreign country and purchased by the residents of the home country.

Question 33

The more times a worker performs a particular task, the more proficient the worker becomes at that task. This source of productivity increase is called

A) continuity.
B) innovation.
C) specialization.
D) repetition.

Question 34

When a specialized worker gains insights into a particular task that leads to better production methods, this is called

A) continuity.
B) innovation.
C) specialization.
D) repetition.

Question 35

Table 3.3

Consider two individuals, Nigel and Mia, who produce hair pins and bandanas. Nigel's and Mia's hourly productivity are shown in Table 3.3. Which of the following is true?

A) Nigel has a comparative advantage in producing hair pins but not bandanas.
B) Nigel has a comparative advantage in producing bandanas but not hair pins.
C) Nigel has a comparative advantage in producing both goods.
D) Nigel does not have a comparative advantage in producing either good.

Question 36

An import is a product

A) produced in and purchased by residents of the home country.
B) produced in and sold to the residents of a foreign country.
C) produced in the home country and sold in another country.
D) produced in a foreign country and purchased by the residents of the home country.

Question 37

Specialization and exchange result from differences in productivity that lead to

A) opportunity cost.
B) comparative advantage.
C) absolute advantage.
D) self-sufficiency.

Question 38

Outsourcing allows a company to take advantage of the ________ of other countries, and in doing so it can produce its products at a lower cost.

A) comparative advantages
B) diminishing returns
C) trade imbalances
D) market failures

Question 39

For country A, an import is a good produced in

A) country B and purchased by residents of country B.
B) country B and purchased by residents of country A.
C) country A and purchased by residents of country B.
D) country A and purchased by residents of country A.

Question 40

Trade results from

A) comparative advantage.
B) absolute advantage.
C) self-sufficiency.
D) diminishing returns.

Question 41

The principles of comparative advantage and specialization only apply to trade between different nations.

Question 42

If a person has an absolute advantage in some activity, she must have a comparative advantage in that activity as well.

Question 43

When a U.S. company shifts some of its production to Mexico, it is engaging in

A) outsourcing.
B) insourcing.
C) self-sufficiency.
D) involuntary exchange.

Question 44

A comparative advantage is the ability of one person or nation to produce a good at an opportunity cost that is lower than that of another person or nation.

Question 45

If Libby can produce 20 gallons of beer or 5 gallons of wine per hour, her opportunity cost of one gallon of beer is 4 gallons of wine.

Question 46

If a person has a comparative advantage in some activity, she must have an absolute advantage in that activity as well.

Question 47

If Eddie can produce 40 milk shakes or 20 banana splits in an hour, and Tina can produce 30 milk shakes or 16 banana splits in an hour, then Tina has a comparative advantage in producing milk shakes.

Question 48

The cost savings from outsourcing often lead to ________ for consumers and ________ for the outsourcing company.

A) lower prices; less output
B) lower prices; more output
C) higher prices; less output
D) higher prices; more output

Question 49

When a U.S. company shifts its call-center operations overseas to reduce costs, it is applying the economic concept of

A) thinking at the margin.
B) comparative advantage.
C) diminishing returns.
D) using assumptions to simplify.

Question 50

If Eddie can produce 40 milk shakes or 20 banana splits in an hour, and Tina can produce 30 milk shakes or 16 banana splits in an hour, then Eddie has a comparative advantage in producing milk shakes.

Question 51

If Eddie can produce 40 milk shakes or 20 banana splits in an hour, and Tina can produce 30 milk shakes or 16 banana splits in an hour, then Tina has a comparative advantage in producing banana splits.

Question 52

Recall the Application about productivity in the nation of Latvia in the 1990s to answer the following question(s).
According to this Application, in the 1990s EU countries had ________ in the production of all products compared to Latvia.

A) an absolute advantage and a comparative advantage
B) an absolute advantage but not a comparative advantage
C) a comparative advantage but not an absolute advantage
D) neither an absolute advantage nor a comparative advantage

Question 53

Imports are products produced in the home country and sold in another country.

Question 54

Jobs lost to outsourcing can be partially offset by jobs gained from

A) higher production costs.
B) higher opportunity costs.
C) greater trade imbalances.
D) increased output from another industry.

Question 55

Recall the Application about productivity in the nation of Latvia in the 1990s to answer the following question(s).
According to this Application, workers in the EU were more productive than workers in Latvia in the 1990s, yet despite this, EU nations chose to trade with Latvia. Engaging in trade with Latvia allowed ________ to become more productive.

A) workers in the EU but not workers in Latvia
B) workers in Latvia but not workers in the EU
C) neither workers in the EU nor in Latvia
D) workers in both the EU and in Latvia

Question 56

If Eddie can produce 40 milk shakes or 20 banana splits in an hour, and Tina can produce 30 milk shakes or 16 banana splits in an hour, then Eddie has a comparative advantage in producing banana splits.

Question 57

Absolute advantage occurs when one producer has greater productivity compared to another producing the same product.

Question 58

Recall the Application about productivity in the nation of Latvia in the 1990s to answer the following question(s).
According to this Application, workers in the EU were more productive than workers in Latvia in the 1990s, yet EU nations still purchased products from Latvia. This is because Latvia ________ in the production of the products it sold to EU nations.

A) had an absolute advantage
B) had a comparative advantage
C) used fewer resources
D) had a higher opportunity cost

Question 59

A U.S. company is attempting to cut costs by shifting some of its services to Thailand. This process of shifting production of products or services overseas to cut costs often results in

A) greater potential for market failure for those products and services.
B) greater economic uncertainty in the market for those products and services.
C) lower consumer prices on those products or services.
D) lower production quantities of those products or services.

Question 60

Exports are products produced in the home country and sold in another country.

Question 61

Define the term "import."

Question 62

What does it mean for a nation to have an absolute advantage in producing a product?

Question 63

Trade will be beneficial for a nation with a comparative advantage in producing a certain product.

Question 64

Imagine two countries, Zorba and Anduluvia. Zorba is producing everything at a lower resource cost than Anduluvia. If the two countries trade what is the reason?

Question 65

Consider two individuals, Ozzy and Sharon, who produce toy boats and yoyos. Ozzy's and Sharon's hourly productivity are as follows:

Who has the absolute advantage or comparative advantage in the production of yoyos or boats?

Question 66

An economy in which government bureaucracy decides how much of a good to produce, how to produce the good, and who gets the good is known as a

A) mixed economy.
B) centrally planned economy.
C) laissez-faire economy.
D) market economy.

Question 67

What does it mean for a person or nation to have a comparative advantage in producing a product?

Question 68

Consider two individuals, Celia and Sondra, who produce bracelets and pendants. Celia's and Sondra's hourly productivity are as follows:

Who has the absolute advantage or comparative advantage in the production of bracelets or pendants?

Question 69

In which system are decisions made by thousands of people who have information about resources, production technology and consumer desires?

A) market system
B) centrally planned system
C) command system
D) socialist system

Question 70

Explain what is meant by the economic principle of voluntary exchange.

Question 71

In a market economy, what provides potential investors with reliable information about the financial performance of a firm?

A) contracts
B) insurance
C) patents
D) accounting rules

Question 72

In An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith listed three reasons for productivity to increase with specialization. What are these three reasons?

Question 73

In a market economy, what specifies the terms of exchange, facilitating exchange between strangers?

A) contracts
B) insurance
C) patents
D) accounting rules

Question 74

A centrally planned economy has a planning authority that decides

A) what products to produce.
B) how the products are produced.
C) who receives the products.
D) all of the above

Question 75

In a market economy, what encourages firms to develop new products and production processes?

A) contracts
B) insurance
C) patents
D) accounting rules

Question 76

In a market system, what provides individuals the information needed to make decisions?

A) insurance
B) prices
C) patents
D) government

Question 77

An economy in which people exchange goods and services in a market is called a

A) socialist economy.
B) market economy.
C) centrally planned economy.
D) command economy.

Question 78

In a market system, self-interest motivates most people to

A) avoid paying insurance premiums.
B) remain self-sufficient.
C) provide products for other people.
D) rely on government central planning.

Question 79

Define the term "export."

Question 80

Trade is only beneficial if a nation has an absolute advantage in producing all products.