Deck 3: Interdependence and the Gains From Trade

Question 1

In most countries today,many goods and services consumed are imported from abroad,and many goods and services produced are exported to foreign customers.

Answer 1

True

Question 2

If a country has the comparative advantage in producing a product,then that country must also have the absolute advantage in producing that product.

Answer 2

False

Question 3

Henry can make a bird house in 3 hours and he can make a bird feeder in 1 hour.The opportunity cost to Henry of making a bird house is 1/3 bird feeder.

Answer 3

False

Question 4

An economy can produce at any point on or inside its production possibilities frontier,but it cannot produce at points outside its production possibilities frontier.

Question 5

Jake can complete an oil change in 45 minutes and he can write a poem in 90 minutes.Ming-la can complete an oil change in 30 minutes and she can write a poem in 90 minutes.Jake's opportunity cost of writing a poem is lower than Ming-la's opportunity cost of writing a poem.

Question 6

A production possibilities frontier is a graph that shows the combination of outputs that an economy should produce.

Question 7

Trade allows a country to consume outside its production possibilities frontier.

Question 8

In an economy consisting of two people producing two goods,it is possible for one person to have the absolute advantage and the comparative advantage in both goods.

Question 9

Harry is a computer company executive,earning $200 per hour managing the company and promoting its products.His daughter Quinn is a high school student,earning $6 per hour helping her grandmother on the farm.Harry's computer is broken.He can repair it himself in one hour.Quinn can repair it in 10 hours.Harry's opportunity cost of repairing the computer is lower than Quinn's.

Question 10

If one producer is able to produce a good at a lower opportunity cost than some other producer,then the producer with the lower opportunity cost is said to have an absolute advantage in the production of that good.

Question 11

Opportunity cost measures the trade-off between two goods that each producer faces.

Question 12

Interdependence among individuals and interdependence among nations are both based on the gains from trade.

Question 13

Suppose that in one hour Dewey can produce either 10 bushels of corn or 20 yards of cloth.Then Dewey's opportunity cost of producing one bushel of corn is 1/2 yard of cloth.

Question 14

It is possible for the U.S.to gain from trade with Germany even if it takes U.S.workers fewer hours to produce every good than it takes German workers.

Question 15

Production possibilities frontiers cannot be used to illustrate tradeoffs.

Question 16

If a person chooses self-sufficiency,then she can only consume what she produces.

Question 17

Opportunity cost refers to how many inputs a producer requires to produce a good.

Question 18

If Wrex can produce more math problems per hour and more book reports per hour than Maxine can,then Wrex cannot gain from trading math problems and book reports with Maxine.

Question 19

If one producer has the absolute advantage in the production of all goods,then that same producer will have the comparative advantage in the production of all goods as well.

Question 20

For a country producing two goods,the opportunity cost of one good will be the inverse of the opportunity cost of the other good.

Question 21

David Ricardo was the author of the 1817 book Principles of Political Economy and Taxation.

Question 22

Suppose Hank and Tony can both produce corn.If Hank's opportunity cost of producing a bushel of corn is 2 bushels of soybeans and Tony's opportunity cost of producing a bushel of corn is 3 bushels of soybeans,then Hank has the comparative advantage in the production of corn.

Question 23

Timmy can edit 2 pages in one minute and he can type 80 words in one minute.Olivia can edit 1 page in one minute and she can type 100 words in one minute.Timmy has an absolute advantage and a comparative advantage in editing,while Olivia has an absolute advantage and a comparative advantage in typing.

Question 24

As long as two people have different opportunity costs,each can gain from trade with the other,since trade allows each person to obtain a good at a price lower than his or her opportunity cost.

Question 25

When each person specializes in producing the good in which he or she has a comparative advantage,each person can gain from trade but total production in the economy is unchanged.

Question 26

Trade allows a person to obtain goods at prices that are less than that person's opportunity cost because each person specializes in the activity for which he or she has the lower opportunity cost.

Question 27

It takes Ross 6 hours to produce a bushel of corn and 2 hours to wash and polish a car.It takes Courtney 6 hours to produce a bushel of corn and 1 hour to wash and polish a car.Courtney and Ross cannot gain from specialization and trade,since it takes each of them 6 hours to produce 1 bushel of corn.

Question 28

Two countries can achieve gains from trade even if one country has an absolute advantage in the production of both goods.

Question 29

For both parties to gain from trade,the price at which they trade must lie exactly in the middle of the two opportunity costs.

Question 30

It takes Anne 3 hours to make a pie and 4 hours to make a shirt.It takes Mary 2 hours to make a pie and 5 hours to make a shirt.Anne should specialize in making shirts and Mary should specialize in making pies,and they should trade.

Question 31

The gains from specialization and trade are based on absolute advantage.

Question 32

Adam Smith developed the theory of comparative advantage as we know it today.

Question 33

Adam Smith wrote that a person should never attempt to make at home what it will cost him more to make than to buy.

Question 34

Adam Smith was the author of the 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations.

Question 35

Goods produced abroad and sold domestically are called exports and goods produced domestically and sold abroad are called imports.

Question 36

The principle of comparative advantage states that,regardless of the price at which trade takes place,everyone will benefit from trade if they specialize in the production of the good for which they have a comparative advantage.

Question 37

Zora can produce 4 quilts in a week and she can produce 1 corporate website in a week.Lou can produce 9 quilts in a week and he can produce 2 corporate websites in a week.Zora has the comparative advantage in quilts and the absolute advantage in neither good,while Lou has the comparative advantage in corporate websites and the absolute advantage in both goods.

Question 38

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

Question 39

Differences in opportunity cost allow for gains from trade.

Question 40

Unless two people who are producing two goods have exactly the same opportunity costs,then one person will have a comparative advantage in one good,and the other person will have a comparative advantage in the other good.

Question 41

Shannon bakes cookies and Justin grows vegetables.In which of the following cases is it impossible for both Shannon and Justin to benefit from trade?

A) Shannon does not like vegetables and Justin does not like cookies.
B) Shannon is better than Justin at baking cookies and Justin is better than Shannon at growing vegetables.
C) Justin is better than Shannon at baking cookies and at growing vegetables.
D) Both Shannon and Justin can benefit from trade in all of the above cases.

Question 42

Trade allows all countries to achieve greater prosperity.

Question 43

A production possibilities frontier is a straight line when

A) the more resources the economy uses to produce one good,the fewer resources it has available to produce the other good.
B) an economy is interdependent and engaged in trade instead of self-sufficient.
C) the rate of tradeoff between the two goods being produced is constant.
D) the rate of tradeoff between the two goods being produced depends on how much of each good is being produced.

Question 44

International trade may make some individuals in a nation better off,while other individuals are made worse off.

Question 45

An economy's production possibilities frontier is also its consumption possibilities frontier

A) under all circumstances.
B) under no circumstances.
C) when the economy is self-sufficient.
D) when the rate of tradeoff between the two goods being produced is constant.

Question 46

A production possibilities frontier is bowed outward when

A) the more resources the economy uses to produce one good,the fewer resources it has available to produce the other good.
B) an economy is self-sufficient instead of interdependent and engaged in trade.
C) the rate of tradeoff between the two goods being produced is constant.
D) the rate of tradeoff between the two goods being produced depends on how much of each good is being produced.

Question 47

The production possibilities frontier illustrates

A) the combinations of output that an economy should produce.
B) the combinations of output that an economy should consume.
C) the combinations of output that an economy can produce.
D) All of the above are correct.

Question 48

Trade can make some individuals worse off,even as it makes the country as a whole better off.

Question 49

The only two countries in the world,Alpha and Omega,face the following production possibilities frontiers.
Alpha's Production Possibilities Frontier Omega's Production Possibilities Frontier

a.
Assume that each country decides to use half of its resources in the production of each good.Show these points on the graphs for each country as point A.
b.
If these countries choose not to trade,what would be the total world production of popcorn and peanuts?
c.
Now suppose that each country decides to specialize in the good in which each has a comparative advantage.By specializing,what is the total world production of each product now?
d.
If each country decides to trade 100 units of popcorn for 100 units of peanuts,show on the graphs the gain each country would receive from trade.Label these points B.

Question 50

Regan grows flowers and makes ceramic vases.Jayson also grows flowers and makes ceramic vases,but Regan is better at producing both goods.In this case,trade could

A) benefit both Jayson and Regan.
B) benefit Jayson,but not Regan.
C) benefit Regan,but not Jayson.
D) benefit neither Jayson nor Regan.

Question 51

For international trade to benefit a country,it must benefit all citizens of that country.

Question 52

Which of the following is not a reason people choose to depend on others for goods and services?

A) to improve their lives
B) to allow them to enjoy a greater variety of goods and services
C) to consume more of each good without working any more hours
D) to allow people to produce outside their production possibilities frontiers

Question 53

Some countries win in international trade,while other countries lose.

Question 54

When an economist points out that you and millions of other people are interdependent,he or 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.

Question 55

When can two countries gain from trading two goods?

A) when the first country can only produce the first good and the second country can only produce the second good
B) when the first country can produce both goods,but can only produce the second good at great cost,and the second country can produce both goods,but can only produce the first good at great cost
C) when the first country is better at producing both goods and the second country is worse at producing both goods
D) Two countries could gain from trading two goods under all of the above conditions.

Question 56

People who provide you with goods and services

A) are acting out of generosity.
B) do so because they get something in return.
C) have chosen not to become interdependent.
D) are required to do so by the government.

Question 57

Explain the difference between absolute advantage and comparative advantage.Which is more important in determining trade patterns,absolute advantage or comparative advantage? Why?

Question 58

Gary and Diane must prepare a presentation for their marketing class.As part of their presentation,they must do a series of calculations and prepare 50 PowerPoint slides.It would take Gary 10 hours to do the required calculation and 10 hours to prepare the slides.It would take Diane 12 hours to do the calculations and 20 hours to prepare the slides.
a.
How much time would it take the two to complete the project if they divide the calculations equally and the slides equally?
b.
How much time would it take the two to complete the project if they use comparative advantage and specialize in calculating or preparing slides?
c.
If Diane and Gary have the same opportunity cost of $5 per hour,is there a better solution than for each to specialize in calculating or preparing slides?

Question 59

Julia can fix a meal in 1 hour,and her opportunity cost of one hour is $50.Jacque can fix the same kind of meal in 2 hours,and his opportunity cost of one hour is $20.Will both Julia and Jacque be better off if she pays him $45 per meal to fix her meals? Explain.

Question 60

Ben bakes bread and Shawna knits sweaters.Ben and Shawna both like to eat bread and wear sweaters.In which of the following cases is it impossible for both Ben and Shawna to benefit from trade?

A) Ben cannot knit sweaters and Shawna cannot bake bread.
B) Ben is better than Shawna at baking bread and Shawna is better than Ben at knitting sweaters.
C) Ben is better than Shawna at baking bread and at knitting sweaters.
D) Both Ben and Shawna can benefit from trade in all of the above cases.

Question 61

The following table contains some production possibilities for an economy for a given month.

If the production possibilities frontier is a straight line,then "?" must be

A) 100.
B) 150.
C) 200.
D) 250.

Question 62

A farmer has the ability to grow either corn or cotton or some combination of the two.Given no other information,it follows that the farmer's opportunity cost of a bushel of corn multiplied by his opportunity cost of a bushel of cotton

A) is equal to 0.
B) is between 0 and 1.
C) is equal to 1.
D) is greater than 1.

Question 63

Suppose a gardener produces both green beans and corn in her garden.If she must give up 14 bushels of corn to get 5 bushels of green beans,then her opportunity cost of 1 bushel of green beans is

A) 0.36 bushel of corn.
B) 2.8 bushels of corn.
C) 14 bushels of corn.
D) 70 bushels of corn.

Question 64

The following table contains some production possibilities for an economy for a given month.

If the production possibilities frontier is bowed outward,then "?" could be

A) 50.
B) 75.
C) 100.
D) 125.

Question 65

Suppose a gardener produces both green beans and corn in her garden.If the opportunity cost of one bushel of corn is 3/5 bushel of green beans,then the opportunity cost of 1 bushel of green beans is

A) 3/5 bushel of corn.
B) 5/3 bushels of corn.
C) 3 bushels of corn.
D) 5 bushels of corn.

Question 66

If Korea is capable of producing either shoes or soccer balls or some combination of the two,then

A) Korea should specialize in the product in which it has an absolute advantage.
B) it would be impossible for Korea to have an absolute advantage over another country in both products.
C) it would be difficult for Korea to benefit from trade with another country if Korea is efficient in the production of both goods.
D) Korea's opportunity cost of shoes is the inverse of its opportunity cost of soccer balls.

Question 67

Assume for the United States that the opportunity cost of each airplane is 100 cars.Then which of these pairs of points could be on the United States' production possibilities frontier?

A) (200 airplanes,5,000 cars)and (150 airplanes,4,000 cars)
B) (200 airplanes,10,000 cars)and (150 airplanes,20,000 cars)
C) (300 airplanes,15,000 cars)and (200 airplanes,25,000 cars)
D) (300 airplanes,25,000 cars)and (200 airplanes,40,000 cars)

Question 68

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) what you give up to get that item.
C) always less than the dollar value of the item.
D) always greater than the cost of producing the item.

Question 69

Mike and Sandy are two woodworkers who both make tables and chairs.In one month,Mike can make 4 tables or 20 chairs,where Sandy can make 6 tables or 18 chairs.Given this,we know that the opportunity cost of 1 chair is

A) 1/5 table for Mike and 1/3 table for Sandy.
B) 1/5 table for Mike and 3 tables for Sandy.
C) 5 tables for Mike and 1/3 table for Sandy.
D) 5 tables for Mike and 3 tables for Sandy.

Question 70

The following table contains some production possibilities for an economy for a given year.

If the production possibilities frontier is bowed outward,then "?" could be

A) 340.
B) 330.
C) 320.
D) 310.

Question 71

The following table contains some production possibilities for an economy for a given year.

If the production possibilities frontier is a straight line,then "?" must be

A) 340.
B) 330.
C) 320.
D) 310.

Question 72

What must be given up to obtain an item is called

A) out-of-pocket cost.
B) comparative worth.
C) opportunity cost.
D) absolute value.

Question 73

If he devotes all of his available resources to cantaloupe production,a farmer can produce 120 cantaloupes.If he sacrifices 1.5 watermelons for each cantaloupe that he produces,it follows that

A) if he devotes all of his available resources to watermelon production,then he can produce 80 watermelons.
B) he cannot have a comparative advantage over other farmers in producing cantaloupes.
C) his opportunity cost of one watermelon is 2/3 of a cantaloupe.
D) his production possibilities frontier is bowed-out.

Question 74

The producer that requires a smaller quantity of inputs to produce a certain amount of a good,relative to the quantities of inputs required by other producers to produce the same amount of that good,

A) has a low opportunity cost of producing that good,relative to the opportunity costs of other producers.
B) has a comparative advantage in the production of that good.
C) has an absolute advantage in the production of that good.
D) should be the only producer of that good.

Question 75

The following table contains some production possibilities for an economy for a given month.

If the production possibilities frontier is bowed outward,then "?" could be

A) 100.
B) 150.
C) 200.
D) 250.

Question 76

If Shawn can produce more donuts in one day than Sue can produce in one day,then

A) Shawn has a comparative advantage in the production of donuts.
B) Sue has a comparative advantage in the production of donuts.
C) Shawn has an absolute advantage in the production of donuts.
D) Sue has an absolute advantage in the production of donuts.

Question 77

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.

Question 78

Assume for Namibia that the opportunity cost of each hut is 200 bowls.Then which of these pairs of points could be on Namibia's production possibilities frontier?

A) (200 huts,30,000 bowls)and (150 huts,35,000 bowls)
B) (200 huts,40,000 bowls)and (150 huts,30,000 bowls)
C) (300 huts,50,000 bowl)and (200 huts,60,000 bowls)
D) (300 huts,60,000 bowls)and (200 huts,80,000 bowls)

Question 79

The following table contains some production possibilities for an economy for a given month.

If the production possibilities frontier is a straight line,then "?" must be

A) 50.
B) 75.
C) 100.
D) 125.

Question 80

Mike and Sandy are two woodworkers who both make tables and chairs.In one month,Mike can make 4 tables or 20 chairs,where Sandy can make 6 tables or 18 chairs.Given this,we know that the opportunity cost of 1 table is

A) 1/5 chair for Mike and 1/3 chair for Sandy.
B) 1/5 chair for Mike and 3 chairs for Sandy.
C) 5 chairs for Mike and 1/3 chair for Sandy.
D) 5 chairs for Mike and 3 chairs for Sandy.