Question 1

On what is comparative advantage based?
A)capital costs.
B)labour costs.
C)dollar price.
D)opportunity costs.

Accepted Answer

Comparative advantage is based on the concept of opportunity cost, which is the cost of giving up one thing to do something else. A country has a comparative advantage in producing a good or service if it can produce it at a lower opportunity cost than another country. Therefore, the correct answer is D) opportunity costs.

Question 2

Table 3-4
 
-Refer to Table 3-4. 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

When trade occurs based on comparative advantage, overall economic efficiency increases, but some individuals may be worse off due to changes in production and employment patterns.

Question 3

For two people who are planning to trade, it is impossible to:
A)have a comparative advantage in both goods.
B)have an absolute advantage in both goods.
C)specialize in the production of one good.
D)trade so that both people will be better off.

Accepted Answer

Comparative advantage is the ability to produce a good at a lower opportunity cost than another producer. Each person can have a comparative advantage in one good over the other, but it is impossible for both to have a comparative advantage in both goods. Therefore, it is impossible to have a comparative advantage in both goods. However, it is possible for one person to have an absolute advantage in both goods. Specialization and trade allow for both individuals to produce and consume the good in which they have a comparative advantage, resulting in both people being better off.

Question 4

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)5/3 bushels of corn.
B)2/5 bushel of corn.
C)5/2 bushels of corn.
D)8/5 bushels of corn.

Accepted Answer

The opportunity cost of one bushel of corn is 3/5 bushel of green beans. This means that to produce one bushel of corn, the gardener must give up producing 3/5 bushel of green beans. Therefore, the opportunity cost of one bushel of green beans is the reciprocal of 3/5, which is 5/3 bushels of corn.

Question 5

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

Accepted Answer

The opportunity cost of 1 birdhouse in Manitoba is 4/3 baskets (as seen in the first row of the table). Therefore, Manitoba should produce baskets since it has a comparative advantage in producing baskets (lower opportunity cost of 3/4 birdhouses per basket compared to Ontario's opportunity cost of 1 birdhouse per basket). Therefore, Manitoba should specialize in producing baskets and trade with Ontario to maximize overall output.

Question 6

Figure 3-5 
-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 
-Refer to Figure 3-5. If...

Question 7

Suppose that Korea produces shoes and soccer balls. Which of the following is correct?
A)It should specialize in the product in which it has an absolute advantage.
B)It would NOT be possible to have an absolute advantage in both goods.
C)It would be difficult to benefit from trade since Korea is efficient in the production of both goods.
D)The opportunity cost of shoes will be the inverse of its opportunity cost of soccer balls.

Accepted Answer

According to the principle of comparative advantage, a country should specialize in the production of the good in which it has a lower opportunity cost. Therefore, if Korea has a lower opportunity cost of producing shoes compared to soccer balls, it should specialize in the production of shoes. The opportunity cost of producing shoes is the inverse of the opportunity cost of producing soccer balls, making option D correct. It is possible to have an absolute advantage in both goods, making option B incorrect. Efficient production in both goods does not make trade difficult, as specialization and trade can still lead to gains from trade, making option C incorrect. Finally, option A is incorrect because a country should specialize in the good in which it has a comparative advantage, not an absolute advantage.

Question 8

Currently, a farmer can either grow 40 bushels of wheat or 120 bushels of corn per acre. If he were able to trade 80 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 2.7 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 2.7 bushels.
D)There is not enough information to answer this question.

Accepted Answer

The opportunity cost of producing wheat is initially 3 bushels of corn (120/40). By trading, he can get 30 bushels of wheat for 80 bushels of corn, reducing the opportunity cost to 2.7 bushels of corn per bushel of wheat (80/30), making him better off.

Question 9

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

Accepted Answer

The answer of Table 3-4
 
-Refer to Table 3-4. What...

Question 10

Figure 3-5 
-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 
-Refer to Figure 3-5. If...

Question 11

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

Accepted Answer

To calculate the opportunity cost, we need to look at the trade-off for Manitoba between producing baskets and birdhouses. For every basket Manitoba produces, they give up the opportunity to produce 3/4 birdhouse (the opportunity cost). Looking at the other options, A is incorrect because it suggests that Manitoba would give up 1/4 of a birdhouse for every basket, which is the opposite of the given information. C and D are incorrect because they suggest that Manitoba would give up one whole birdhouse for every basket, which is not the case based on the information in the table.

Question 12

If Shawn can produce donuts at a lower opportunity cost than Sue, which of the following is correct?
A)Shawn has a comparative advantage in the production of donuts.
B)Sue has a comparative advantage in the production of donuts.
C)Shawn should be retrained and produce a different product.
D)It is obvious that Shawn is capable of producing more donuts than Sue.

Accepted Answer

If Shawn can produce donuts at a lower opportunity cost than Sue, it means that for every unit of donut that Shawn produces, he is giving up fewer units of other goods or services compared to Sue. This means Shawn has a comparative advantage in the production of donuts, and should focus on producing more donuts while Sue should focus more on producing goods or services in which she has a lower opportunity cost.

Question 13

Suppose a gardener produces both green beans and corn in her garden. If she must give up 13 bushels of corn to get 5 bushels of green beans, what is the opportunity cost of 1 bushel of green beans?
A)0.38 bushel of corn.
B)2.6 bushels of corn.
C)8 bushels of corn.
D)18 bushels of corn.

Accepted Answer

The opportunity cost of 1 bushel of green beans is the amount of corn the gardener gives up per bushel of green beans gained. From the problem, we know that the garden must give up 13 bushels of corn to get 5 bushels of green beans. So, the opportunity cost of 1 bushel of green beans is 13/5, which simplifies to 2.6 bushels of corn. Therefore, the best answer is B.

Question 14

On what is trade based?
A)absolute advantage.
B)comparative advantage.
C)production costs.
D)relative dollar prices.

Accepted Answer

Trade is based on comparative advantage, which means countries specialize in producing goods or services they are relatively better at producing compared to other countries. This allows for a more efficient allocation of resources and benefits all countries involved in the trade.

Question 15

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

Accepted Answer

The opportunity cost of 1 birdhouse for Alberta is 1/3 basket because Alberta can produce 3 birdhouses for every basket, so for each birdhouse, she gives up 1/3 of a basket.

Question 16

For two people who are planning to trade two different goods, each will have a comparative advantage in a different good unless,
A)they have exactly the same opportunity cost.
B)they have agreed in advance on who will produce what and how much each will produce.
C)the terms of trade are such that neither can gain from trade.
D)one person has an absolute advantage in both products.

Accepted Answer

The concept of comparative advantage states that each person has a lower opportunity cost in producing one good over the other. Therefore, unless their opportunity costs for producing each good are exactly the same, each person will have a comparative advantage in a different good.

Question 17

Table 3-4
 
-Refer to Table 3-4. 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 principle of comparative advantage suggests that each region should specialize in the production of the good for which it has a lower opportunity cost. Alberta will export birdhouses if it has a comparative advantage in producing them, while Manitoba will export baskets if it has a comparative advantage in producing them.

Question 18

Table 3-4
 
-Refer to Table 3-4. Which of the following is correct?
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

From the table, we can see that the opportunity cost of producing one birdhouse in Alberta is 2/3 of a basket while in Manitoba it is 1/2 of a basket. Therefore, Manitoba has a lower opportunity cost of producing birdhouses and thus has a comparative advantage in birdhouses. Similarly, the opportunity cost of producing one basket in Alberta is 3/2 birdhouses while in Manitoba it is 1 birdhouse. Therefore, Alberta has a lower opportunity cost of producing baskets and thus has a comparative advantage in baskets. This matches with option B.

Question 19

Table 3-4
 
-Refer to Table 3-4. Which of the following is correct?
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 more birdhouses and baskets than Manitoba with the same amount of resources.

Question 20

Using all available resources, if a farmer can produce either 85 cantaloupes or 70 watermelons, what is the opportunity cost of 1 cantaloupe to the farmer?
A).82 watermelons.
B)1.21 watermelons.
C)15 watermelons.
D)There is not enough information given to answer this question.

Accepted Answer

The answer of Using all available resources, if a farmer...

Quiz 3: Interdependence and the Gains From Trade

On what is comparative advantage based?

Table 3-4 -Refer to Table 3-4. If Alberta and Manitoba trade based on the principle of comparative advantage, what will happen?

For two people who are planning to trade, it is impossible to:

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?

Table 3-4 -Refer to Table 3-4. What is the opportunity cost of 1 birdhouse for Manitoba?

Figure 3-5 -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?

Suppose that Korea produces shoes and soccer balls. Which of the following is correct?

Currently, a farmer can either grow 40 bushels of wheat or 120 bushels of corn per acre. If he were able to trade 80 bushels of corn for 30 bushels of wheat, would he be better off or worse off?

Table 3-4 -Refer to Table 3-4. What is the opportunity cost of 1 basket for Alberta?

Figure 3-5 -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?

Table 3-4 -Refer to Table 3-4. What is the opportunity cost of 1 basket for Manitoba?

If Shawn can produce donuts at a lower opportunity cost than Sue, which of the following is correct?

Suppose a gardener produces both green beans and corn in her garden. If she must give up 13 bushels of corn to get 5 bushels of green beans, what is the opportunity cost of 1 bushel of green beans?

On what is trade based?

Table 3-4 -Refer to Table 3-4. What is the opportunity cost of 1 birdhouse for Alberta?

For two people who are planning to trade two different goods, each will have a comparative advantage in a different good unless,

Table 3-4 -Refer to Table 3-4. If Alberta and Manitoba trade based on the principle of comparative advantage, what will be exported?

Table 3-4 -Refer to Table 3-4. Which of the following is correct?

Table 3-4 -Refer to Table 3-4. Which of the following is correct?

Using all available resources, if a farmer can produce either 85 cantaloupes or 70 watermelons, what is the opportunity cost of 1 cantaloupe to the farmer?