Question 1

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.

Accepted Answer

Timmy is able to edit more pages per minute than Olivia, giving him an absolute advantage in editing. Additionally, he has a lower opportunity cost for editing compared to typing, therefore giving him a comparative advantage in editing. On the other hand, Olivia is able to type more words per minute than Timmy, giving her an absolute advantage in typing. She also has a lower opportunity cost for typing compared to editing, therefore giving her a comparative advantage in typing.

Question 2

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.

Accepted Answer

Hank has a lower opportunity cost (2 bushels of soybeans) compared to Tony (3 bushels of soybeans) for producing a bushel of corn, indicating his comparative advantage in corn production.

Question 3

Fred trades 2 tomatoes to Barney in exchange for 1 pumpkin.Fred and Barney both gain from the exchange.We can conclude that,for Barney,the opportunity cost of producing 1 pumpkin is greater than 2 tomatoes.

Accepted Answer

The statement that both Fred and Barney gain from the exchange does not necessarily imply anything about Barney's opportunity cost of producing 1 pumpkin relative to 2 tomatoes. It only indicates that each values what they receive more than what they give up.

Question 4

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.

Accepted Answer

This statement is consistent with the principle of comparative advantage, which states that individuals or countries should specialize in producing the good for which they have the lowest opportunity cost, and trade with others for goods they have a higher opportunity cost for. If two individuals have different opportunity costs, then they will have differing comparative advantages in different goods.

Question 5

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.

Accepted Answer

Comparative advantage is determined by who has the lower opportunity cost in producing a good, not by who produces more. Zora has the comparative advantage in corporate websites because she gives up fewer quilts to produce a website compared to Lou. Lou has the absolute advantage in both goods because he can produce more of both quilts and websites in a week than Zora.

Question 6

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

Accepted Answer

A country can have a comparative advantage in producing a product if it can produce that product at a lower opportunity cost than another country. However, this does not necessarily mean that the country has an absolute advantage in producing that product. Absolute advantage refers to the ability to produce a particular good or service using fewer resources than another country.

Question 7

In one month,Moira can knit 2 sweaters or 4 scarves.In one month,Tori can knit 1 sweater or 3 scarves.Together,they could produce more output in total if Moira knits only sweaters and Tori knits only scarves.

Accepted Answer

Moira has a higher opportunity cost for scarves (1 sweater = 2 scarves) compared to Tori (1 sweater = 3 scarves), making Moira relatively better at knitting sweaters and Tori relatively better at knitting scarves. By specializing in these tasks, they maximize their combined output.

Question 8

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

Accepted Answer

Trade allows individuals or countries to specialize in the production of goods and services that they can produce at a lower cost or with greater efficiency compared to others. This leads to an increase in overall productivity, higher economic output, and economic growth. As a result, consumers can enjoy a wider variety of products at lower prices, and producers can access larger markets to sell their products. Therefore, trade can benefit everyone in society by creating wealth, improving efficiency, and promoting innovation.

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.

Accepted Answer

Harry's opportunity cost of repairing the computer is $200 (the amount he earns per hour), whereas Quinn's opportunity cost is $6 (the amount she earns per hour). Since $200 is greater than $6, Harry's opportunity cost is higher than Quinn's.

Question 10

When there are two people and each is capable of producing two goods,it is possible for one person to have a comparative advantage over the other in both goods.

Accepted Answer

According to the principle of comparative advantage, each person should specialize in producing the good for which they have the lower opportunity cost. Therefore, it is not possible for one person to have a comparative advantage over the other in both goods.

Question 11

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.

Accepted Answer

While one person can have the absolute advantage in both goods (meaning they can produce more of both goods with the same resources), comparative advantage is about who can produce a good at a lower opportunity cost. If one person has a comparative advantage in one good, the other person must have the comparative advantage in the other good, as comparative advantage is relative.

Question 12

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.

Accepted Answer

The principle of comparative advantage suggests that countries or individuals will benefit from trade if they specialize in producing goods for which they have a lower opportunity cost, not regardless of the price at which trade takes place. The benefits from trade depend on the relative prices of goods, which should reflect comparative advantages.

Question 13

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.

Accepted Answer

Absolute advantage refers to the ability of a party to produce a greater quantity of a good, product, or service than competitors, using the same amount of resources. Comparative advantage, however, involves producing goods at a lower opportunity cost. It is possible for one producer to have an absolute advantage in all goods but still have a comparative advantage in only some, as comparative advantage is determined by which goods can be produced at the lowest relative opportunity cost, not the highest volume.

Question 14

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

Accepted Answer

The gains from specialization and trade are actually based on comparative advantage, not absolute advantage. Comparative advantage occurs when one country can produce a good at a lower opportunity cost than another country, while absolute advantage occurs when one country can produce more of a good using the same amount of resources as another country.

Question 15

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.

Accepted Answer

According to the principle of comparative advantage, each person should specialize in the activity for which they have a lower opportunity cost. Anne has a lower opportunity cost in making shirts because she gives up 3/4 of a pie for each shirt (since she can make a pie in 3 hours and a shirt in 4 hours), whereas Mary gives up 2.5 pies for each shirt (since she can make a pie in 2 hours and a shirt in 5 hours). Conversely, Mary has a lower opportunity cost in making pies because she gives up 0.4 of a shirt for each pie (since she can make a shirt in 5 hours and a pie in 2 hours), whereas Anne gives up 0.75 of a shirt for each pie (since she can make a shirt in 4 hours and a pie in 3 hours). Therefore, Anne should specialize in making shirts and Mary in making pies, and they should trade to maximize their combined output.

Question 16

Ellie and Brendan both produce apple pies and vanilla ice cream.If Ellie's opportunity cost of one apple pie is 1/2 gallon of ice cream and Brendan's opportunity cost of one apple pie is 1/4 gallon of ice cream,Ellie has a comparative advantage in the production of ice cream.

Accepted Answer

Ellie's opportunity cost of producing one apple pie is higher in terms of ice cream, meaning she has to give up less ice cream to produce apple pies compared to Brendan. This implies Brendan has a comparative advantage in apple pies, and Ellie in ice cream, as comparative advantage is determined by who has the lower opportunity cost in production.

Question 17

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.

Accepted Answer

Courtney has a comparative advantage in washing and polishing cars because she can do it in less time than Ross. Ross, by focusing on producing corn, where their productivity is the same, allows both to benefit from specialization and trade based on Courtney's lower opportunity cost for car washing.

Question 18

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.

Accepted Answer

The producer with the lower opportunity cost is said to have a comparative advantage, not an absolute advantage. Absolute advantage refers to the ability of a party to produce a greater quantity of a good, product, or service than competitors, using the same amount of resources.

Question 19

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

Accepted Answer

Even if one country has an absolute advantage in the production of both goods, there may be differences in their relative opportunity costs, which means that both countries can still benefit from trading with each other. This is based on the principle of comparative advantage, where each country specializes in the production of the good for which they have a lower opportunity cost, and then trades with the other country for the other good.

Question 20

Differences in opportunity cost allow for gains from trade.

Accepted Answer

Opportunity cost is the value of the best alternative that must be given up in order to engage in a certain activity. Differences in opportunity cost mean that individuals and countries have different abilities to produce goods and services. This creates an opportunity for mutually beneficial trade where parties can specialize in producing goods and services that they have a comparative advantage in, and trade with others to obtain goods and services that they do not have a comparative advantage in. This allows for gains from trade, as both parties can enjoy a higher standard of living than if they had to produce everything they consume on their own.

Quiz 3: Interdependence and the Gains from Trade.