Question 1

Mike and Sandy are two woodworkers who both make tables and chairs.In one month,Mike can make 6 tables or 18 chairs,where Sandy can make 5 tables or 25 chairs.Who has a comparative advantage in which product

Accepted Answer

To determine comparative advantage, we need to calculate the opportunity cost of producing each item. The opportunity cost is the value of the next best alternative that must be given up in order to produce that item.

For Mike: 
Opportunity cost of 1 table = 3 chairs (since he can make 6 tables or 18 chairs in a month) 
Opportunity cost of 1 chair = 1/3 table

For Sandy: 
Opportunity cost of 1 table = 5 chairs 
Opportunity cost of 1 chair = 1/5 table

Comparing the opportunity costs, we can see that Mike has a lower opportunity cost for producing tables (1 table costs him 3 chairs) than Sandy (1 table costs her 5 chairs), so Mike has a comparative advantage in table production.

Conversely, Sandy has a lower opportunity cost for producing chairs (1 chair costs her 1/5 table) than Mike (1 chair costs him 1/3 table), so Sandy has a comparative advantage in chair production.

Therefore, the best choice is D, Mike in tables and Sandy in chairs.

Question 2

Suppose a producer can produce shirts with lower opportunity cost than jeans.What else do we need to know if we want to determine this producer's comparative advantage

Accepted Answer

To determine comparative advantage, we need to compare the opportunity cost of producing the two goods between different producers. Therefore, we need to know how this producer's opportunity cost compares with other producer's opportunity cost. Knowing the producer's opportunity cost alone is not sufficient to determine comparative advantage.

Question 3

What should a country do if it has a comparative advantage in a product

Accepted Answer

If a country has a comparative advantage in producing a particular product, it means that it can produce that product at a lower opportunity cost than other countries. This means that it is more efficient for the country to produce that product and export it to other countries rather than producing a different product. By specializing in producing that product and exporting it, the country can increase its income and overall economic welfare. Therefore, the best choice is for the country to export that product.

Question 4

Spain and Germany can both produce fish and cars.Spain has a comparative advantage in cars,but Germany has an absolute advantage in cars.What would Germany import from Spain

Accepted Answer

Germany would import cars from Spain because even though Germany has an absolute advantage in producing cars, Spain has a comparative advantage in producing cars. This means that Spain can produce cars at a lower opportunity cost compared to Germany, making it relatively cheaper for Germany to import cars from Spain rather than producing them domestically.

Question 5

Mike and Sandy are two woodworkers who both make tables and chairs.In one month,Mike can make 6 tables or 18 chairs,where Sandy can make 5 tables or 25 chairs.What is the opportunity cost of 1 chair

Accepted Answer

To calculate the opportunity cost of one chair, we need to determine how many tables each woodworker is giving up to produce one more chair. 
For Mike, the opportunity cost of one chair is 1/6 of a table (since he can make 6 tables or 18 chairs in a month). 
For Sandy, the opportunity cost of one chair is 1/5 of a table (since she can make 5 tables or 25 chairs in a month). 
Therefore, the answer is option C, where the opportunity cost of one chair is 1/3 of a table for Mike and 1/5 of a table for Sandy.

Question 6

What is the opportunity cost of an item

Accepted Answer

Opportunity cost refers to the value of the next best alternative that is forgone as a result of making a decision. It is what you give up to get that item, not necessarily related to the time spent earning money or the dollar value of the item.

Question 7

How is absolute advantage found

Accepted Answer

Absolute advantage is found by comparing the productivity of one nation to that of another. It refers to the ability of a country or firm to produce a good or service more efficiently than another country or firm, using the same amount of resources.

Question 8

Mike and Sandy are two woodworkers who both make tables and chairs.In one month,Mike can make 6 tables or 18 chairs,where Sandy can make 5 tables or 25 chairs.Who has an absolute advantage in which product

Accepted Answer

Mike has an absolute advantage in making tables as he can make 6 in a month while Sandy can make only 5. Sandy has an absolute advantage in making chairs as she can make 25 in a month while Mike can make only 18. Therefore, the best choice is to have Mike specialize in making tables and Sandy specialize in making chairs, as it would maximize their production efficiency.

Question 9

How does trade benefit the two parties involved

Accepted Answer

Trade allows both parties to acquire goods and services that they may not have access to otherwise. However, the degree to which each party benefits may depend on the specifics of the trade agreement, such as the price agreed upon and the quality of the goods or services exchanged. Therefore, while trade does benefit both parties, it may not always be equal.

Question 10

What does comparative advantage reflect

Accepted Answer

Comparative advantage reflects the opportunity cost of producing one good or service relative to another. It is based on the idea that countries can benefit from specializing in producing the goods and services in which they have a lower relative opportunity cost and then trading with other countries for goods and services that they cannot produce as efficiently. Productivity, equity, and terms of trade advantage may be related to comparative advantage, but they are not the primary factors that it reflects.

Question 11

Why does total output in an economy increase when each person specializes

Accepted Answer

When each person specializes, they are able to focus on the production of goods or services that they are relatively more efficient at producing. This allows them to produce more output with the same amount of resources and time. As a result, total output in the economy increases.

Question 12

Mike and Sandy are two woodworkers who both make tables and chairs.In one month,Mike can make 6tables or 18 chairs,where Sandy can make 5 tables or 25 chairs.What is the opportunity cost of 1 table

Accepted Answer

The opportunity cost of 1 table for Mike is 3 chairs (18 chairs/6 tables), and for Sandy, it is 5 chairs (25 chairs/5 tables).

Question 13

Egypt has a comparative advantage in the production of linen and an absolute advantage in the production of beer,compared to Russia.If these two countries decide to trade,what would the pattern of trade be

Accepted Answer

Egypt has a comparative advantage in the production of linen, which means it can produce linen at a lower opportunity cost than Russia. On the other hand, Russia does not have a comparative advantage in either beer or linen production. Therefore, Egypt should export linen to Russia while importing beer from Russia to maximize gains from trade.

Question 14

Both Canada and the U.S.can produce equally tasty maple syrup.What determines which country will export maple syrup

Accepted Answer

The country with the lower opportunity cost of producing maple syrup will specialize in its production and export it. Opportunity cost is the key concept in comparative advantage, which determines trade patterns.

Question 15

Which of the following would NOT occur if each person specializes in the good for which they have a comparative advantage

Accepted Answer

Specialization and trade allow individuals to produce more of the good they have a lower opportunity cost in producing, leading to an overall increase in total production and the size of the economic pie. However, specialization does not necessarily shift each individual's production possibilities frontier outward; this would depend on the specific skills and resources each person possesses.

Question 16

What is the term that means whatever must be given up to obtain an item

Accepted Answer

The term that means whatever must be given up to obtain an item is opportunity cost. It refers to the value of the next best alternative that must be sacrificed in order to pursue a certain action or decision. Choice A (efficiency) and Choice D (equilibrium) are not related to the concept of opportunity cost. Choice B (externality) refers to the unintended impact of a decision or activity on third parties, and is also not related to opportunity cost.

Question 17

What happens when countries specialize according to their comparative advantage

Accepted Answer

When countries specialize according to their comparative advantage and engage in trade, it is possible to increase world output of all goods as each country can focus on producing the goods it is most efficient at producing. This leads to overall gains in productivity, output, and living standards for all countries involved in the trade.

Question 18

Which of the following does trade NOT allow for

Accepted Answer

Although trade allows for many benefits, it may not benefit all individuals equally within trading countries. Some individuals or industries may be negatively impacted by trade, such as those whose jobs are outsourced to other countries with lower labor costs. Therefore, trade does not necessarily allow for all individuals within trading countries to benefit.

Question 19

Assume that Spain has a comparative advantage in fish and Germany has a comparative advantage in cars.What will happen if these two countries specialize and trade according to their comparative advantage

Accepted Answer

When countries specialize and trade according to their comparative advantage, they produce more of the good for which they have a comparative advantage. Germany, having a comparative advantage in cars, will produce more cars than fish in the absence of trade.

Question 20

Suppose a producer requires a smaller quantity of inputs to produce carrots than to produce onions.Is this information sufficient to determine in which good the producer has a comparative advantage

Accepted Answer

Comparative advantage cannot be determined solely by the quantity of inputs required for one producer; it requires comparing the opportunity costs of producing goods between different producers. Information about how other producers use their resources is necessary to establish comparative advantage.

Quiz 3: Interdependence and the Gains From Trade