Question 1

-Refer to the table. Who has an absolute advantage in the production of each good?
A) Summer has an absolute advantage in sleds, and Winter has an absolute advantage in beach balls.
B) Summer has an absolute advantage in beach balls, and Winter has an absolute advantage in sleds.
C) Summer has an absolute advantage in neither good, and Winter has an absolute advantage in both goods.
D) Summer has an absolute advantage in both goods, and Winter has an absolute advantage in neither good.

Accepted Answer

Summer can produce 1 sled with 1 hour of labor, while Winter can produce 1 sled with 2 hours of labor. Summer can produce 1 beach ball with 2 hours of labor, while Winter can produce 1 beach ball with 3 hours of labor. Therefore, Summer has an absolute advantage in the production of sleds, and Winter has an absolute advantage in the production of beach balls.

Question 2

Currently, a farmer can either grow 40 bushels of wheat or 120 bushels of corn per acre. If he were able to trade 70 bushels of corn for 30 bushels of wheat, would he be better off or worse off?
A) worse off, because his opportunity cost of wheat would increase from 2.33 bushels of corn to 3 bushels of corn
B) better off, because his opportunity cost of wheat would fall from 80 bushels to 50 bushels
C) better off, because his opportunity cost of wheat would fall from 3 bushels of corn to 2.33 bushels
D) worse off, because his opportunity cost of wheat would increase from 50 bushels of corn to 80 bushels of corn

Accepted Answer

The farmer's opportunity cost of wheat is the amount of corn he must give up to produce one unit of wheat. Before the trade, the opportunity cost of wheat was 3 bushels of corn (120 corn / 40 wheat). After the trade, the farmer gives up 70 bushels of corn to obtain 30 bushels of wheat, which means his opportunity cost of wheat is now 2.33 bushels of corn (70 corn / 30 wheat). Therefore, the farmer is better off after the trade because his opportunity cost of wheat has fallen.

Question 3

-Refer to the table. Who has a comparative advantage in the production of each good?
A) Summer has a comparative advantage in beach balls, and Winter has a comparative advantage in sleds.
B) Summer has a comparative advantage in sleds, and Winter has a comparative advantage in beach balls.
C) Summer has a comparative advantage in neither good, and Winter has a comparative advantage in both goods.
D) Summer has a comparative advantage in both goods, and Winter has a comparative advantage in neither good.

Accepted Answer

The answer of 
-Refer to the table. Who has a...

Question 4

Using all available resources, if a farmer can produce either 65 cantaloupes or 70 watermelons, what is the opportunity cost of 1 cantaloupe to the farmer?
A) 0.82 watermelons
B) 1.08 watermelons
C) 1.50 watermelons
D) 2.00 watermelons

Accepted Answer

The opportunity cost of 1 cantaloupe is the number of watermelons the farmer must forego producing in order to produce 1 additional cantaloupe. Therefore, the opportunity cost of 1 cantaloupe is 70/65 = 1.08 watermelons. 
The best choice is to produce the crop with the higher opportunity cost, which is watermelons since the farmer must forego more cantaloupes to produce 1 additional watermelon.

Question 5

What economic concept is the most relevant when defining comparative advantage?
A) opportunity cost
B) equity
C) scarcity
D) efficiency

Accepted Answer

Comparative advantage is based on the idea of opportunity cost, which is the benefit a person or country forgoes when choosing one alternative over another. For example, if Country A can produce either 10 cars or 20 computers with the same resources, and Country B can produce either 5 cars or 10 computers with the same resources, then Country A has a comparative advantage in producing computers, while Country B has a comparative advantage in producing cars. This is because Country A has a lower opportunity cost for producing computers (only giving up half the production of cars) compared to Country B (giving up producing twice as many computers).

Question 6

-Refer to the table. If Summer and Winter trade based on the principle of comparative advantage, what will be exported?
A) Summer will export beach balls, and Winter will export sleds.
B) Summer will export sleds, and Winter will export beach balls.
C) Summer will export neither good, and Winter will export both goods.
D) Summer will export both goods, and Winter will export neither good.

Accepted Answer

The answer of 
-Refer to the table. If Summer and...

Question 7

Shawn can produce beach towels at a lower opportunity cost than Larissa. Who has an absolute or a comparative advantage in the production of beach towels?
A) Shawn has a comparative advantage.
B) Larissa has a comparative advantage.
C) Shawn has an absolute advantage.
D) Larissa has an absolute advantage.

Accepted Answer

Shawn has a lower opportunity cost in producing beach towels, meaning he can produce them more efficiently than Larissa. This is the definition of comparative advantage. It does not indicate who has an absolute advantage, as that is measured by who can produce more output with the same amount of inputs, while comparative advantage is a comparison of opportunity costs.

Question 8

-Refer to the table. What is the opportunity cost of one sled for Winter?
A) 3/4 beach ball
B) 1 beach ball
C) 4/3 beach balls
D) 3 beach balls

Accepted Answer

The opportunity cost of one good is what is given up to produce that good. For Winter, producing 1 sled means giving up the production of 4/3 beach balls, as indicated by the ratio of their production possibilities.

Question 9

Figure 3-5
These graphs illustrate the production possibilities available for dancing shoes to Fred and Ginger with 40 hours of labour. 
-Refer to Figure 3-5. If Fred and Ginger both specialize in the good in which they have a comparative advantage, what would the total production be?
A) 6 ballet slippers and 6 tap shoes
B) 8 ballet slippers and 6 tap shoes
C) 8 ballet slippers and 8 tap shoes
D) 8 ballet slippers and 10 tap shoes

Accepted Answer

When Fred and Ginger specialize in the goods for which they have a comparative advantage, they maximize total production. The total production would be 8 ballet slippers and 10 tap shoes.

Question 10

Figure 3-5
These graphs illustrate the production possibilities available for dancing shoes to Fred and Ginger with 40 hours of labour. 
-Refer to Figure 3-5. If Fred and Ginger both specialize in the good in which they have a comparative advantage, what would the total consumption be?
A) 4 ballet slippers and 6 tap shoes
B) 6 ballet slippers and 6 tap shoes
C) 8 ballet slippers and 8 tap shoes
D) 8 ballet slippers and 10 tap shoes

Accepted Answer

The answer of Figure 3-5
These graphs illustrate the production possibilities...

Question 11

What is comparative advantage based on?
A) capital costs
B) labour costs
C) dollar price
D) opportunity costs

Accepted Answer

Comparative advantage is based on opportunity costs, which refers to the trade-offs one has to make to produce one good over another. In other words, it is the cost of giving up one opportunity to pursue another opportunity. By comparing opportunity costs between two countries or individuals, it is possible to determine which country/individual has a comparative advantage in a specific product or service. The country/individual with the lowest opportunity cost has the comparative advantage and should specialize in producing that product or service.

Question 12

South Korea can produce shoes, clothes, TV sets, and computers cheaper than any other country. What would one expect South Korea to export?
A) all of these goods
B) none of these goods
C) some of these and other goods
D) some of these but no other goods

Accepted Answer

It is likely that South Korea will export some of these goods (shoes, clothes, TV sets, and computers) due to their comparative advantage in producing them at lower costs. However, they may also export other goods that they have a comparative advantage in, resulting in a mix of exports.

Question 13

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, what is the opportunity cost of 1 bushel of green beans?
A) 3/5 bushel of corn
B) 8/5 bushels of corn
C) 5/3 bushels of corn
D) 5/2 bushels of corn

Accepted Answer

The opportunity cost of 1 bushel of green beans is the inverse of the opportunity cost of 1 bushel of corn, which is 5/3 bushels of corn.

Question 14

-Refer to the table. What is the opportunity cost of one sled for Summer?
A) 1/3 beach ball
B) 1 beach ball
C) 4/3 beach balls
D) 3 beach balls

Accepted Answer

Summer can trade 1 sled for 1/3 beach ball. So, the opportunity cost of one sled is 1/3 beach ball.

Question 15

For two people who are planning to trade two different goods, when will there NOT be a comparative advantage for either?
A) if they have exactly the same opportunity cost
B) if they have agreed in advance on who will produce what and how much each will produce
C) if the terms of trade are such that neither can gain from trade
D) if one person has an absolute advantage in both products

Accepted Answer

Comparative advantage arises from differences in opportunity costs between two individuals or countries. If they have exactly the same opportunity cost, then there is no advantage for either party to specialize in one good over another.

Question 16

What is trade based on?
A) absolute advantage
B) comparative advantage
C) production costs
D) relative dollar prices

Accepted Answer

Trade is based on comparative advantage, which means that a country produces and exports goods and services for which it has the lowest opportunity cost, and imports goods and services for which it has a higher opportunity cost compared to its trading partners. This allows countries to specialize in what they do best and benefit from their comparative advantages. Absolute advantage, production costs, and relative dollar prices may also affect trade, but comparative advantage is the main determinant of trade patterns.

Question 17

-Refer to the table. If Summer and Winter (assumed to be provinces) trade based on the principle of comparative advantage, what will happen?
A) All individuals in both provinces will gain.
B) No one in either province will gain.
C) Some individuals within both provinces will be made worse off.
D) One province will be better off, and the other province will be worse off.

Accepted Answer

When two regions trade based on comparative advantage, overall welfare increases, but some individuals or groups may be worse off due to changes in production and employment patterns.

Question 18

-Refer to the table. What is the opportunity cost of one beach ball for Winter?
A) 1/4 sled
B) 3/4 sled
C) 1 sled
D) 4/3 sleds

Accepted Answer

The opportunity cost of one beach ball for Winter is 3/4 sled because it represents the amount of sleds Winter has to give up to produce one additional beach ball.

Question 19

-Refer to the table. What is the opportunity cost of one beach ball for Summer?
A) 1/3 sled
B) 1 sled
C) 3 sleds
D) 4 sleds

Accepted Answer

The answer of 
-Refer to the table. What is the...

Question 20

Suppose a gardener produces both green beans and corn in her garden. If she must give up 20 bushels of corn to get 4 bushels of green beans, what is the opportunity cost of 1 bushel of green beans?
A) 1/5 bushel of corn
B) 5 bushels of corn
C) 16 bushels of corn
D) 24 bushels of corn

Accepted Answer

The opportunity cost of 1 bushel of green beans is the amount of corn that must be given up to get it. Given that 20 bushels of corn are given up for 4 bushels of green beans, the opportunity cost per bushel of green beans is 20/4 = 5 bushels of corn.

Quiz 3: Interdependence and the Gains From Trade

-Refer to the table. Who has an absolute advantage in the production of each good?

Currently, a farmer can either grow 40 bushels of wheat or 120 bushels of corn per acre. If he were able to trade 70 bushels of corn for 30 bushels of wheat, would he be better off or worse off?

-Refer to the table. Who has a comparative advantage in the production of each good?

Using all available resources, if a farmer can produce either 65 cantaloupes or 70 watermelons, what is the opportunity cost of 1 cantaloupe to the farmer?

What economic concept is the most relevant when defining comparative advantage?

-Refer to the table. If Summer and Winter trade based on the principle of comparative advantage, what will be exported?

Shawn can produce beach towels at a lower opportunity cost than Larissa. Who has an absolute or a comparative advantage in the production of beach towels?

-Refer to the table. What is the opportunity cost of one sled for Winter?

Figure 3-5 These graphs illustrate the production possibilities available for dancing shoes to Fred and Ginger with 40 hours of labour. -Refer to Figure 3-5. If Fred and Ginger both specialize in the good in which they have a comparative advantage, what would the total production be?

Figure 3-5 These graphs illustrate the production possibilities available for dancing shoes to Fred and Ginger with 40 hours of labour. -Refer to Figure 3-5. If Fred and Ginger both specialize in the good in which they have a comparative advantage, what would the total consumption be?

What is comparative advantage based on?

South Korea can produce shoes, clothes, TV sets, and computers cheaper than any other country. What would one expect South Korea to export?

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, what is the opportunity cost of 1 bushel of green beans?

-Refer to the table. What is the opportunity cost of one sled for Summer?

For two people who are planning to trade two different goods, when will there NOT be a comparative advantage for either?

What is trade based on?

-Refer to the table. If Summer and Winter (assumed to be provinces) trade based on the principle of comparative advantage, what will happen?

-Refer to the table. What is the opportunity cost of one beach ball for Winter?

-Refer to the table. What is the opportunity cost of one beach ball for Summer?

Suppose a gardener produces both green beans and corn in her garden. If she must give up 20 bushels of corn to get 4 bushels of green beans, what is the opportunity cost of 1 bushel of green beans?