Question 1

Suppose a gardener produces both green beans and corn in her garden. If the opportunity cost of one bushel of corn is 2/3 bushel of green beans, what is the opportunity cost of 1 bushel of green beans?
A) 2/5 bushel of corn
B) 8/5 bushels of corn
C) 3/2 bushels of corn
D) 5/3 bushels of corn

Accepted Answer

Since the opportunity cost of one bushel of corn is 2/3 bushel of green beans, we can find the opportunity cost of one bushel of green beans by taking the reciprocal of 2/3, which is 3/2. Therefore, the best choice is C) 3/2 bushels of corn.

Question 2

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 countries should specialize in producing the goods or services that they can produce at a lower opportunity cost compared to other countries. This allows for greater efficiency and productivity, leading to increased economic growth and well-being. Trade based on absolute advantage, production costs, or relative dollar prices can still occur, but comparative advantage provides a sound economic basis for international trade.

Question 3

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 concept of opportunity cost, which is the cost of giving up one thing in order to produce or consume something else. It refers to the fact that a country or individual can specialize in producing the good or service in which it has a lower opportunity cost, and trade with another country or individual that has a higher opportunity cost in producing that good or service.

Question 4

-Refer to the table. If Alberta and Manitoba 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

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

Question 5

-Refer to the table. What is the opportunity cost of one basket for Manitoba?
A) 1/4 birdhouse
B) 3/4 birdhouse
C) 1 birdhouse
D) 4/3 birdhouses

Accepted Answer

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

Question 6

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 7

Suppose a gardener produces both green beans and corn in her garden. If she must give up 15 bushels of corn to get 5 bushels of green beans, what is the opportunity cost of 1 bushel of green beans?
A) 1/3 bushel of corn
B) 3 bushels of corn
C) 8 bushels of corn
D) 18 bushels of corn

Accepted Answer

Since the gardener must give up 15 bushels of corn to produce 5 bushels of green beans, the opportunity cost of 1 bushel of green beans is 3 bushels of corn (15/5). Therefore, the answer is B.

Question 8

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 is the cost of giving up one opportunity in order to pursue another. In other words, it is based on the idea that a country should specialize in producing the goods or services that it can produce at a lower opportunity cost compared to other countries.

Question 9

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 the goods it can produce more cheaply, such as shoes, clothes, TV sets, and computers, along with other goods. This could include goods that it does not produce as cheaply, but has a comparative advantage in producing or goods that have a high demand in other countries.

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 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

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

Question 11

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 give up to produce one cantaloupe. To find the opportunity cost, we need to calculate the ratio of watermelons to cantaloupes:

70 watermelons / 1 farm
65 cantaloupes / 1 farm

To produce 1 cantaloupe, the farmer must give up 70/65 = 1.08 watermelons.

Therefore, the answer is B, as the opportunity cost of 1 cantaloupe to the farmer is 1.08 watermelons.

The best choice is to produce whichever fruit has the higher market price or demand.

Question 12

-Refer to the table. Who has an absolute advantage in the production of each good?
A) Alberta has an absolute advantage in birdhouses, and Manitoba has an absolute advantage in baskets.
B) Alberta has an absolute advantage in baskets, and Manitoba has an absolute advantage in birdhouses.
C) Alberta has an absolute advantage in neither good, and Manitoba has an absolute advantage in both goods.
D) Alberta has an absolute advantage in both goods, and Manitoba has an absolute advantage in neither good.

Accepted Answer

Alberta can produce 4 birdhouses or 6 baskets in one hour, while Manitoba can produce 1 birdhouse or 8 baskets in one hour. This means that Alberta has an absolute advantage in baskets since she can produce more baskets in one hour than Manitoba. On the other hand, Manitoba has an absolute advantage in birdhouses since he can produce more birdhouses in one hour than Alberta. Therefore, the correct answer is (B): Alberta has an absolute advantage in baskets, and Manitoba has an absolute advantage in birdhouses.

Question 13

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

Accepted Answer

The answer of Shawn can produce donuts at a lower...

Question 14

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 currently 3 bushels of corn (since he gives up 120/40=3 bushels of corn for each bushel of wheat). If he trades 70 bushels of corn for 30 bushels of wheat, he would end up with 50 bushels of corn and 30 bushels of wheat. His new opportunity cost of wheat would be (50/30) = 1.67 bushels of corn, which is lower than his original opportunity cost of 3 bushels of corn. Therefore, the farmer would be better off by making the trade.

Question 15

-Refer to the table. What is the opportunity cost of one birdhouse for Alberta?
A) 1/3 basket
B) 1 basket
C) 4/3 baskets
D) 3 baskets

Accepted Answer

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

Question 16

-Refer to the table. Who has a comparative advantage in the production of each good?
A) Alberta has a comparative advantage in baskets, and Manitoba has a comparative advantage in birdhouses.
B) Alberta has a comparative advantage in birdhouses, and Manitoba has a comparative advantage in baskets.
C) Alberta has a comparative advantage in neither good, and Manitoba has a comparative advantage in both goods.
D) Alberta has a comparative advantage in both goods, and Manitoba has a comparative advantage in neither good.

Accepted Answer

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

Question 17

-Refer to the table. If Alberta and Manitoba trade based on the principle of comparative advantage, what will be exported?
A) Alberta will export baskets, and Manitoba will export birdhouses.
B) Alberta will export birdhouses, and Manitoba will export baskets.
C) Alberta will export neither good, and Manitoba will export both goods.
D) Alberta will export both goods, and Manitoba will export neither good.

Accepted Answer

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

Question 18

-Refer to the table. What is the opportunity cost of one basket for Alberta?
A) 1/3 birdhouse
B) 1 birdhouse
C) 3 birdhouses
D) 4 birdhouses

Accepted Answer

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

Question 19

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

If both people have exactly the same opportunity cost (meaning the same amount of resources and time needed to produce either good), then they won't have a comparative advantage in either good over the other. Therefore, neither person will have an advantage in trading and there won't be gains from trade.

Question 20

-Refer to the table. What is the opportunity cost of one birdhouse for Manitoba?
A) 3/4 basket
B) 1 basket
C) 4/3 baskets
D) 3 baskets

Accepted Answer

The opportunity cost of one birdhouse for Manitoba is 3/4 basket of berries. Therefore, Manitoba should choose to produce baskets of berries instead of birdhouses since the opportunity cost is lower.

Quiz 3: Interdependence and the Gains From Trade

Suppose a gardener produces both green beans and corn in her garden. If the opportunity cost of one bushel of corn is 2/3 bushel of green beans, what is the opportunity cost of 1 bushel of green beans?

What is trade based on?

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

-Refer to the table. If Alberta and Manitoba trade based on the principle of comparative advantage, what will happen?

-Refer to the table. What is the opportunity cost of one basket for Manitoba?

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?

Suppose a gardener produces both green beans and corn in her garden. If she must give up 15 bushels of corn to get 5 bushels of green beans, what is the opportunity cost of 1 bushel of green beans?

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?

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?

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?

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

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

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. What is the opportunity cost of one birdhouse for Alberta?

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

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

-Refer to the table. What is the opportunity cost of one basket for Alberta?

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

-Refer to the table. What is the opportunity cost of one birdhouse for Manitoba?