Deck 2: The Power of Trade and Comparative

Question 1

Specialization and trade can _____ the per-unit cost of production because _____ .

A) decrease; it allows for more small-scale production.
B) decrease; it creates economies of scale associated with large-scale production
C) increase; it requires more expensive, specialized equipment
D) increase; more expensive labor is needed.

Answer 1

decrease; it creates economies of scale associated with large-scale production

Question 2

Economic growth in the modern era is primarily due to the:

A) increases in the number of people.
B) increases in money.
C) defining of nation borders.
D) creation of new knowledge.

Answer 2

creation of new knowledge.

Question 3

The United States and the European Union are groups of semi-independent states that have come together under an agreement whereby resources can travel freely across borders and a common currency is in use. Which of the following statements best explains how this allows for the achievement of economies of scale?

A) Each state or country can now target larger markets and can thus earn more export revenue.
B) States and countries no longer have to worry about borders impeding trade.
C) Each state or country can adopt large-scale production techniques that allow lower per-unit costs of production.
D) The removal of trade borders and a common currency enhances trade between member states.

Answer 3

Each state or country can adopt large-scale production techniques that allow lower per-unit costs of production.

Question 4

The main reason why specialization can raise productivity is that:

A) knowledge in human brains is limited.
B) some persons have more knowledge than others.
C) it is always good to know less than more.
D) it is impossible to learn anything well.

Question 5

If each of us had to grow all of our own food:

A) civilization would collapse and billions of people would starve.
B) we would have more time for other pursuits.
C) people would be richer since they would no longer have to spend money on groceries.
D) the total amount of knowledge in society would increase since everyone would have to learn about farming.

Question 6

David sells his car, which he considers worthless, to Cameron for $200. Which of the following statements is true?

A) David and Cameron must have different preferences for the car.
B) This trade did not create value because Cameron is buying a car that David considers worthless.
C) Cameron is the only one made better off by the trade.
D) David is made better off by the trade, but Cameron is made worse off.

Question 7

One of the outcomes of specialization is that it leads to _____, which _____ the average cost of production.

A) smaller-scale production; lowers
B) smaller-scale production; raises
C) larger-scale production; raises
D) larger-scale production; lowers

Question 8

Each of 100 people receives a random item from a grocery store and assigns it a value between 1 (low) and 10 (high). They trade those items among themselves for items they prefer rather than those they randomly received and then assign a second value (again, 1 to 10) to the item that they end up with after the trading concludes. How would the sum of those values before trading compare with the sum after trading?

A) The value would stay the same because no new goods were introduced.
B) The value would stay the same because no one has a comparative advantage.
C) After trading, value would be lower because no one can specialize.
D) After trading, value would be higher because preferences are diverse.

Question 9

Which of the following is least likely a consequence of the division of knowledge?

A) The development of the computer tablet.
B) A totally self-sufficient family farm.
C) A new delivery method for cancer-fighting drugs.
D) The provision of a new bike path in your community.

Question 10

Knowledge increases ____________ and specialization __________ total output.

A) education; decreases
B) productivity; increases
C) perception; increases
D) economies of scale; decreases

Question 11

eBay creates value by:

A) helping sellers trick buyers into purchasing broken items.
B) moving goods like broken laser pointers from people who don't want them to people who do.
C) helping people with the same preferences find each other.
D) moving toys from children who want them to children who don't.

Question 12

Mark values his drum set at $800 and Ella values her guitar at $1,000. Suppose that Mark trades his drum set for Ella's guitar.

A) This trade makes Ella worse off by $200.
B) This trade makes Mark better off by $200.
C) Mark must value Ella's guitar for at least $800, and Ella must value Mark's drum set for at least $1,000.
D) This trade decreases total value by moving the guitar and drum away from people who placed a high value on them.

Question 13

Only a very small portion of people who use microwaves know how they work. This is an example of:

A) a production possibility frontier.
B) division of knowledge.
C) absolute advantage.
D) opportunity cost.

Question 14

If instead of specialized doctors (neurologists, cardiologists, gastroenterologists, etc.) we had doctors who each knew the same things about all aspects of medicine, it would be:

A) better because then we could just go to one doctor with no loss of quality in medical care.
B) better because total medical knowledge in society would increase.
C) worse because the human brain is limited.
D) worse because total medical knowledge in society would decrease.

Question 15

Roses grown in Kenya travel to Amsterdam and ultimately to your local flower shop because:

A) the World Rose Commission coordinates the different elements of the rose industry.
B) markets coordinate the specialization and trade necessary for the flower industry to function.
C) of the trade agreement between the governments of Kenya and Amsterdam.
D) customers are willing to pay more for roses that pass through Amsterdam.

Question 16

Division of knowledge refers to:

A) dividing tasks into different subtasks and having one person perform all these subtasks.
B) people learning different tasks in which they specialize.
C) assigning one person to learn all the different ways to perform the same task.
D) limiting what each person knows about another person.

Question 17

Which of the following situations would lead to more starvation?

A) a world where everyone grows his or her own food and there is no trade
B) a world with trade and lots of specialization
C) a world with immense division of knowledge
D) a world where only some people specialize in food and everyone else produces something else

Question 18

Trade creates value because:

A) people get what they want.
B) raw materials are transformed into finished products.
C) people exchange things they do not want for things they do.
D) idle resources are put to use.

Question 19

Facilitators of trade (such as Pierre Omidyar, the developer of eBay):

A) may become very rich since they are creating value for many individuals.
B) find it very hard to profit from their services since they are not directly involved in the trades.
C) typically only profit from their services if they are able to obtain government patent rights.
D) are usually seen as taking advantage of consumers.

Question 20

Trade makes people better off when:

A) everyone wants the same things as other people.
B) some people are less productive than others.
C) people cannot specialize in certain activities.
D) people have different preferences.

Question 21

The ability of one producer to produce one good or service using fewer inputs than another producer is:

A) comparative advantage.
B) absolute advantage.
C) opportunity cost.
D) competition.

Question 22

Which of the following is typically a result of the division of knowledge?

A) The society runs with the knowledge of a few persons.
B) Each person has the same knowledge as everyone else.
C) Labor productivity is higher..
D) No one specializes in any activity.

Question 23

Which of the following best describes the principle of comparative advantage?

A) Some people can produce the same good better than other producers can.
B) Someone has the ability to produce the same good using fewer inputs than another producer.
C) Someone has the ability to produce the same good for the lowest opportunity cost.
D) To produce more of one good, people have to produce less of another good.

Question 24

A rock carving from ancient Norway depicts two identical people doing different jobs in the same boat: one uses a bow to hunt while the other paddles. How does this early example illustrate the benefits of trade?

A) One prefers to hunt while the other prefers to paddle the boat; this is an example of diverse preferences.
B) One learns to be very good at paddling and one learns to be very good at hunting; this is an example of specialization and division of knowledge.
C) The paddler is stronger than the hunter so the paddler sacrifices a lot by hunting; this is an example of comparative advantage.
D) There is no trade in this example since no goods are being exchanged.

Question 25

Economies can grow due to:

A) the extent to which all individuals are educated in all areas of production.
B) government policies.
C) the extent to which markets facilitate specialization through trade.
D) barriers to trade that promote the growth of domestic markets.

Question 26

Which of the following statements is TRUE?
I. Compared with a modern economy, the division of knowledge is greater in a primitive economy because every family is self-sufficient: growing their own food, making their own clothes, and constructing their own shelter.
II. Nobody understands the entire process of producing even the simplest products, like a lead pencil, in a modern economy.
III. The collapse of communism and the opening of the Chinese economy to the rest of the world have increased the division of knowledge, leading to increased world output.

A) I only
B) III only
C) II and III only
D) I, II, and III

Question 27

The enormous variety of goods and services that we consume each day can be attributed mainly to:

A) government regulations.
B) home production.
C) specialization and trade.
D) early craftsmen handing down their knowledge.

Question 28

As trade becomes more widespread, specialization ______, which in turn ______ productivity.

A) decreases; decreases
B) increases; increases
C) decreases; increases
D) increases; decreases

Question 29

If the goal of education were solely to support economic growth, the ideal graduate would be a:

A) jack-of-all-trades but master of none (where a "jack" is a serviceable tradesperson).
B) jack-of-one-trade and master of one.
C) jack-of-no-trades and master of none.
D) jack-of-some-trades but master of none.

Question 30

Utilizing comparative advantage can best be exemplified as:

A) your lawyer word-processing her own legal briefs.
B) the CEO of Microsoft programming his own computer.
C) the president of your university teaching a class again.
D) a world-renowned chef hiring someone to cook meals for his family.

Question 31

Absolute advantage derives from which of the following?

A) the lowest cost of production
B) the most suitable climate
C) the least expensive labor force
D) the best educated labor force

Question 32

Fourteenth-century potters in the Chinese city of Jingdezhen developed the technology to heat a kiln at 1,300 degrees Celsius and produce porcelain, or "china," which was particularly popular in Persia where the Koran forbade serving food on gold or silver and wealthy families were anxious for a legal way to impress their dinner guests. The potters also imported Persian cobalt to create the blue dye for the porcelain (local cobalt was not as bold in color). Which advantage(s) from trade is(are) illustrated in this passage?

A) differences in preferences
B) specialization
C) comparative advantage
D) The passage illustrates all of these advantages.

Question 33

Trade barriers like the Berlin Wall:

A) increased the number of scientists and engineers.
B) added billions of minds to the global division of knowledge.
C) decreased innovation and global cooperation.
D) prevented restrictive monopolistic practices.

Question 34

Owen Wilson is an actor who has acted in many action comedy films. In contrast, Tom Cruise has acted in many serious action films. How might the theory of specialization be applied to them?

A) Owen Wilson has fully specialized in action comedy movies while Tom Cruise has fully specialized in serious action movies.
B) Due to filmography protectionism, Owen Wilson is unable to secure serious action roles, and Tom Cruise is unable to secure action comedy roles.
C) Casting directors see Owen Wilson as relatively better at action comedy roles and Tom Cruise as relatively better at serious action roles and cast them accordingly.
D) Owen Wilson does not have the talent necessary to act in more serious films.

Question 35

Which of the following best explains the term "specialization" with respect to trade?

A) Specialization occurs when a people concentrate their productive resources on the goods and services they can produce most efficiently.
B) Specialization occurs when one person can produce more of a particular good than another person.
C) Specialization refers to the absolute advantage that a person enjoys in the production of goods and services.
D) Specialization refers to the ability of a person to produce more of a good than his or her trading partners.

Question 36

Suppose a famous baseball player, Alex Rodriguez, hires a high school student to paint his house. Which of the following is most likely TRUE?

A) The opportunity cost of painting a house is higher for Alex Rodriguez than for the high school student.
B) The opportunity cost of painting a house is lower for Alex Rodriguez than for the high school student.
C) The opportunity cost of painting a house is the same for Alex Rodriguez as for the high school student.
D) The opportunity cost of painting a house is zero for Alex Rodriguez and is negative for the high school student.

Question 37

Why do people specialize?

A) Specialization increases productivity.
B) Specialization decreases people's dependence on one another.
C) People become self-sufficient when they specialize.
D) Most people only know how to do a few tasks.

Question 38

Without trade, the knowledge used by an entire economy would be about the same as the knowledge had by:

A) all intelligent people combined.
B) a large number of people.
C) one person.
D) no one.

Question 39

Jesse is good at math and excellent at making friends and Addae is equally good at both. Mathematically and socially challenged Jordan wants to hire tutors to help in each area. Who should tutor Jordan in which area to maximize Jordan's college experience?

A) Jesse and Addae should tutor Jordan in both math and social skills.
B) Jesse should teach math and Addae should teach how to make friends.
C) Jesse and Addae should both teach how to make friends.
D) Jesse should teach how to make friends and Addae should teach math.

Question 40

The relationship between trade and specialization is best characterized as follows:

A) Trade decreases specialization, which in turn increases the demand for trade.
B) Trade decreases specialization, which in turn decreases the demand for trade.
C) Trade increases specialization, which in turn increases the demand for trade.
D) Trade increases specialization, which in turn decreases the demand for trade.

Question 41

Use the following to answer questions:
Figure: PPF Goods X & Y
(Figure: PPF Goods X & Y) Refer to the figure. Which of the points representing various consumption possibilities for the country portrayed above is only attainable through foreign trade?

A) Point A
B) Point B
C) Point C
D) Both points C and B

Question 42

According to the theory of comparative advantage, a country should specialize in producing a good that involves:

A) more inputs than those in other countries.
B) fewer inputs than those in other countries.
C) a higher opportunity cost than that of other countries.
D) a lower opportunity cost than that of other countries.

Question 43

Use the following to answer questions:
Figure: PPF Nickel & Textiles
(Figure: PPF Nickel & Textiles) Refer to the figure. How many tons of textiles does Australia give up to produce one ton of nickel?

A) 1/3
B) 1/2
C) 2
D) 3

Question 44

The real cost of producing a good is:

A) the dollar cost of inputs used to make the item.
B) the opportunity cost of producing the good.
C) the resources that were used to make the good.
D) the dollar amount it costs to sell the good.

Question 45

Suppose France can produce four phones or three computers with one unit of labor, and Sweden can produce one phone or two computers with one unit of labor. If France can trade only with Sweden, then the theory of comparative advantage suggests that:

A) France should specialize in producing phones and import computers from Sweden.
B) France should specialize in producing computers and import phones from Sweden.
C) France should produce both phones and computers, and import nothing from Sweden.
D) France should import both phones and computers from Sweden.

Question 46

The theory of comparative advantage is:

A) rarely relevant for identifying whether gains from trade can be obtained.
B) always relevant for identifying whether gains from trade can be obtained.
C) not true for nations, though it may be true for individuals.
D) true for nations, but it is not true for business or individuals.

Question 47

Use the following to answer questions:
Figure: PPF Nickel & Textiles
(Figure: PPF Nickel & Textiles) Refer to the figure. What is the maximum amount of nickel China can produce?

A) 10 tons
B) 8 tons
C) 6 tons
D) 4 tons

Question 48

Comparative advantage is determined by which of the following?

A) efficiency
B) bargaining power
C) opportunity cost
D) productivity

Question 49

Use the following to answer questions:
Figure: PPF Mexico & United States
(Figure: PPF Mexico & United States) Use the figure in which both Mexico and the United States each have 24 units of labor. The opportunity costs of producing one computer are:

A) six shirts for Mexico and one shirt for the United States.
B) 1/6 of a shirt for both Mexico and the United States.
C) one shirt for Mexico and 1/6 of a shirt for the United States.
D) six shirts for both Mexico and the United States.

Question 50

Which of the following statements shows how absolute advantage can be distinguished from comparative advantage?

A) Absolute advantage refers to the ability to produce a good using fewer inputs, while comparative advantage is based on the monthly amount.
B) Absolute advantage is based on the yearly production amount that a country can produce, while comparative advantage is based on the monthly production amount.
C) Absolute advantage refers to the ability to produce a larger amount of goods with the same number of inputs, whereas comparative advantage refers to the ability to have the lowest opportunity cost of production.
D) Absolute advantage is based on the amount of land a country has to use, while comparative advantage is based on the cost of the labor.

Question 51

Anita is a wonderful baker and can bake 10 cakes in a day, but then has no time left to make cookies. If she bakes only cookies, she can make 200 cookies in a day. John can make equally delicious cakes and cookies but can only make seven cakes or 100 cookies in a day. Based on this information, which of the following statements is true?

A) Anita should split her time between cakes and cookies. John should bake cakes.
B) Anita should bake cakes and John should bake cookies.
C) Anita and John should split their time equally between cakes and cookies.
D) Anita should bake cookies and John should bake cakes.

Question 52

Use the following to answer questions:
Figure: PPF Mexico & United States
(Figure: PPF Mexico & United States) Use the figure in which both Mexico and the United States each have 24 units of labor. The opportunity costs of producing one shirt are:

A) one computer for Mexico and 1/6 of a computer for the United States.
B) 1/6 of a computer for Mexico and one computer for United States.
C) one computer for both Mexico and the United States.
D) 1/6 of computer for both Mexico and the United States.

Question 53

The production possibilities frontier shows:

A) the combinations of outputs a country can produce given its resources and productivity.
B) the combinations of inputs that a country has given its outputs and productivity.
C) the combinations of outputs and resources that a country possesses given its productivity.
D) the maximum level of a country's productivity given its resources and outputs.

Question 54

Use the following to answer questions:
Figure: PPF Nickel & Textiles
(Figure: PPF Nickel & Textiles) Refer to the figure. What is the maximum amount of textiles China can produce?

A) 10 tons
B) 8 tons
C) 6 tons
D) 4 tons

Question 55

Use the following to answer questions:
Figure: PPF Goods X & Y
(Figure: PPF Goods X & Y) Refer to the figure. Point A represents an allocation of resources that is:

A) efficient.
B) inefficient.
C) impossible.
D) the result of trade.

Question 56

Use the following to answer questions:
Figure: PPF Goods X & Y
Suppose a country without any international trade opens its borders to international trade. After specialization how will its location on its production possibility frontier change?

A) The country moves from inside the PPF to on the PPF.
B) The country moves from on the PPF to beyond the PPF.
C) The country moves along the PPF toward its comparative advantage.
D) The country moves along the PPF away from its comparative advantage.

Question 57

A producer has a comparative advantage over other producers if his production of the good involves:

A) more inputs.
B) fewer inputs.
C) a higher opportunity cost.
D) a lower opportunity cost.

Question 58

On a production possibilities frontier a trade-off can be illustrated as:

A) an outward shift.
B) an inward shift.
C) a movement from a point inside the frontier to one on the frontier.
D) a movement along the frontier itself.

Question 59

Anita is a wonderful baker and can bake 10 cakes in a day, but then has no time left to make cookies. If she bakes only cookies, she can make 200 cookies in a day. John can make equally delicious cakes and cookies but can only make seven cakes or 100 cookies in a day. Based on this information, which of the following statements is true?

A) Anita has the comparative advantage in the production of cakes.
B) John has the comparative advantage in the production of cakes.
C) John has the absolute advantage in the production of cookies.
D) Anita has the comparative advantage in the production of both cakes and cookies.

Question 60

According to the theory of comparative advantage:

A) every country can produce some good with a lower opportunity cost.
B) every country should produce goods that involve high opportunity costs.
C) some countries have a comparative advantage in producing every good.
D) some countries should import every good from other countries.

Question 61

Use the following to answer questions:
Figure: Countries A and B
(Figure: Countries A and B) Refer to the figure regarding countries A and B. If each country allocated half of its labor force to the production of each good before trade and were to then each specialize in their comparative advantage and allocate 75 percent of its labor force to the production of that good, world production of Good X would change by _____ and the production of Good Y by _____.

A) 40; 50
B) 25; -5
C) 15; -5
D) 50; 40

Question 62

Use the following to answer questions:
Figure: Countries A and B
(Figure: Countries A and B) Refer to the figure regarding countries A and B. The opportunity cost of producing Good X in Country A is _____ and in Country B it is _____ meaning that Country _____ should specialize in producing Good X and Country _____ in Good Y.

A) 2Y; 1Y; B; A
B) 1/2Y; 1Y; B; A
C) 1/2Y; 1Y; A; B
D) 2Y; 1Y; A; B

Question 63

Adam Smith advocated the benefits of:

A) protectionism.
B) trade tariffs over trade quotas.
C) international trade.
D) absolute advantage.

Question 64

The principles of comparative advantage, specialization, and trade apply to:
I. individuals.
II. communities.
III. regions.
IV. nations.

A) I and II only
B) I, II, and III only
C) II, III, and IV only
D) I, II, III, and IV

Question 65

Two countries that specialize where they have a comparative advantage and then trade with each other will experience increases in:
I. wages in both countries.
II. total output in both countries.
III. living standards in both countries.

A) I and II only
B) II and III only
C) II only
D) I, II, and III

Question 66

Which of the following statements is TRUE?

A) Trade makes workers in high productivity countries less productive.
B) Trade causes workers in low-wage countries to receive an even lower wage.
C) Specialization and trade raise wages in both countries that are party to the trade.
D) Specialization and trade raise productivity but not wages.

Question 67

According to the theory of comparative advantage, the reason wages are lower in China than in the United States is:

A) the higher cost of living in the United States.
B) lower productivity in China.
C) the lower opportunity cost to work in China.
D) more trade restrictions in the United States.

Question 68

Use the following to answer questions:
Figure: Countries A and B
(Figure: Countries A and B) Refer to the figure regarding countries A and B. If both countries fully allocate all of their labor toward the good in which they have a comparative advantage, the combined production for the two countries would be _______ units of Good X, and _______ units of Good Y.

A) 100; 80
B) 70; 90
C) 40; 100
D) 100; 100

Question 69

A country has a comparative advantage in producing a good when it produces that good:

A) at a lower opportunity cost than another country.
B) at a higher opportunity cost than another country.
C) in greater quantity than another country.
D) with fewer inputs than another country.

Question 70

Which of the following best characterizes the relationship between the parties to a trade and the gains from trade?

A) Gains from trade are fueled by differences in preferences and differences in opportunity costs of production.
B) Gains from trade are fueled by differences in preferences only.
C) Gains from trade are fueled by differences in opportunity costs of production only.
D) Gains from trade are greatest when there are no differences between the two parties to trade.

Question 71

Use the following to answer questions:
Figure: Countries A and B
(Figure: Countries A and B) Refer to the figure regarding countries A and B. Assume that each country begins by allocating half its labor force to the production of each good. Through trade with each other, each country could increase its consumption of both goods if Country A moved part of its labor force to the production of Good _____ and Country B moved part of its labor force to the production of Good _____.

A) X; X
B) X; Y
C) Y; Y
D) Y; X

Question 72

Angela and Ed are married. Angela can do $40 worth of household chores per hour, and Ed can do $15 worth of household chores per hour. In the labor market, Ed can earn $30/hour and Angela can earn $40/hour. The theory of comparative advantage suggests that:

A) Ed should specialize in household production and Angela should specialize in market work.
B) Angela should specialize in household production and Ed should specialize in market work.
C) Angela should specialize in both household production and market work.
D) Ed should specialize in both household production and market work.

Question 73

Two persons each produce two identical goods. Which of the following is true about their absolute and comparative advantages in the production of these two goods?

A) One person can have an absolute advantage in both goods but not a comparative advantage in both goods.
B) One person can have a comparative advantage in both goods but not an absolute advantage in both goods.
C) One person can have neither an absolute nor a comparative advantage in either good.
D) Both persons can always have both an absolute and comparative advantage in both goods.

Question 74

Absolute advantage is the ability to produce a:

A) good at a lower opportunity cost than others.
B) good with fewer inputs than others.
C) good when demand is high.
D) variety of goods.

Question 75

Use the following to answer questions:
Figure: Countries A and B
(Figure: Countries A and B) Refer to the figure. According to the diagram about countries A and B, which of the following statement(s) is correct? I. Country A has a comparative advantage in Good Y.
II. Country B has an absolute advantage in both goods.
III. Country B has a comparative advantage in Good X.

A) I and II only
B) I and III only
C) II and III only
D) I, II, and III

Question 76

If labor in China is less productive than labor in the United States in all areas of production, then:

A) both the United States and China can benefit from trade.
B) neither nation can benefit from trade.
C) China can benefit from trade but not the United States.
D) the United States can benefit from trade but not China

Question 77

Which of the following statements is TRUE?

A) Only a high-wage country can benefit by trading with a low-wage country.
B) A high-wage country cannot benefit by trading with a low-wage country.
C) Trade raises the wages of workers in low- and high-wage countries.
D) There is an inverse relationship between productivity and wages.

Question 78

Which statement is TRUE?

A) It is virtually impossible for a country to be the low-cost producer of all goods and services.
B) The benefits of trade depend on absolute advantage, not comparative advantage.
C) A country could have a comparative advantage in producing everything.
D) A country that has the absolute advantage in production will also have the comparative advantage.

Question 79

In Colombia, it takes three workers to produce two pounds of coffee. In Mexico, it takes four workers to produce one pound of coffee. Therefore:

A) Colombia has a comparative advantage in the production of coffee.
B) Mexico has a comparative advantage in the production of coffee.
C) in Colombia, the opportunity cost of producing one pound of coffee is two-thirds.
D) Colombia has an absolute advantage in the production of coffee.

Question 80

Use the following to answer questions:
Figure: PPF Mexico & United States
(Figure: PPF Mexico & United States) Use the above figure in which both Mexico and the United States each have 24 units of labor. Mexico has a comparative advantage in ______ and the United States has a comparative advantage in ______.

A) computers; shirts
B) shirts; computers
C) computers; computers
D) shirts; shirts