Deck 3: Interdependence and the Gains From Trade

Question 1

Rusty can edit two pages in one minute, and can type 80 words in one minute. Emily can edit one page in one minute and can type 100 words in one minute. Rusty has both an absolute and a comparative advantage in editing and Emily has both an absolute and a comparative advantage in typing.

Answer 1

True

Question 2

A constant trade-off in the production of two goods implies that the production possibility frontier will be a curve rather than a straight line.

Answer 2

False

Question 3

Khan can catch three cockatoos or 18 crocodile eggs per day. James can catch four cockatoos or 24 crocodile eggs per day. Khan does not have a comparative advantage in either catching cockatoos or crocodile eggs.

Answer 3

True

Question 4

Joan can catch 20 lobsters in one day. It also takes her one day to make five lobster-pots to catch the lobsters. Her opportunity cost of one lobster-pot is 20 lobsters.

Question 5

Jean grows rice at a higher cost than Lee. Suppose Lee catches fish at a higher cost than Jean. For this reason it only benefits Lee they trade.

Question 6

If trade is not possible, then each person's production possibility frontier is the same as each person's consumption possibility frontier.

Question 7

It takes Barbara three hours to make a pie and four hours to make a shirt. It takes Gary two hours to make a pie and five hours to make a shirt. Barbara should specialise in making pies and Gary should specialise in making shirts. Then they should trade.

Question 8

Trade is not based on absolute advantage; rather it is based on comparative advantage.

Question 9

People's motivation to trade comes from the goods or services they expect to get in return.

Question 10

Shaquille can score 32 points or produce 12 rebounds in one game. Karl can score three points or produce one rebound in one game. Shaquille has both an absolute and a comparative advantage in both scoring and rebounding.

Question 11

One reason trade benefits both parties is that it allows each to specialise in what they do better.

Question 12

Robinson Crusoe can produce 20 coconuts or 10 palm leaves in one day. Friday can produce 25 coconuts or five palm leaves in one day. Both individuals will be made better off through trade if Robinson specialises in producing coconuts and Friday specialises in producing palm leaves.

Question 13

Suppose it takes Jean four hours to catch 10 fish and one hour to collect one kilogram of mushrooms. It takes Lee four hours to catch 10 fish and 30 minutes to collect one kilogram of mushrooms. It is not possible for Jean and Lee to gain from specialisation and trade.

Question 14

The producer who requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good.

Question 15

Two individuals or two nations benefit from trade only if it is impossible for each individual or nation to produce the good or service purchased from the other.

Question 16

Trade allows a country to consume outside its production possibilities frontier.

Question 17

Michael can score 30 points per game and Scottie can score 22 points per basketball game. Michael has both an absolute and a comparative advantage over Scottie in scoring.

Question 18

Suppose George can make 12 coffees or six croissants in an hour. Lewis can make 15 coffees or 10 croissants in an hour. Under these conditions there will be no benefit to Lewis to trade with George.

Question 19

The producer who has the smaller opportunity cost of producing a good is said to have a comparative advantage in producing that good.

Question 20

For a country producing two goods, the opportunity cost of one good will be the inverse of the opportunity cost of the other good.

Question 21

A person is able to obtain goods at prices that are less than that person's opportunity cost because each person concentrates on the activity for which he or she has the lower opportunity cost.

Question 22

A Korean worker can produce 10 cars per month or grow 1500 kg of wheat per month and an American worker can produce four cars or 1700 kg of rice per month. Korea and the US can both gain if Korea makes more cars and exports them to the US in exchange for imports of increased output of Australian rice.

Question 23

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

Question 24

Adam Smith discusses that countries should be self-sufficient in his 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations.

Question 25

Goods produced abroad and sold domestically are called exports and goods produced domestically and sold abroad are called imports.

Question 26

Mark is a computer company executive, and earns $500 per hour managing the company and promoting its products. His daughter Regan is a high school student, and earns $6 per hour helping her grandmother on the farm. Mark's computer is broken. He can repair it himself in one hour. Regan can repair it in 10 hours. Mark has a comparative advantage in repairing the computer.

Question 27

The conclusions of Adam Smith and David Ricardo on the gains from trade are no longer valid due to the increase of barriers to trade.

Question 28

The central argument for free trade has changed a lot in the past two centuries.

Question 29

Adam Smith's book An Inquiry into the Nature and Causes of the Wealth of Nations inspired David Ricardo, a millionaire stockbroker, to become an economist.

Question 30

Lee can pick 30 apples in one hour. He can pick 60 kiwifruit in half an hour. The opportunity cost to Lee of picking one apple is four kiwifruit.

Question 31

David Riccardo developed the theory of comparative advantage, as we know it today.

Question 32

Differences in opportunity cost and comparative advantage allow for gains from trade.

Question 33

The principle of absolute advantage explains the gains from trade and why economic interdependence occurs.

Question 34

When parties specialise in the production of goods they have a comparative advantage in, total production is increased and both parties can gain from trade.

Question 35

As long as two people have different opportunity costs, each can gain from trade by being able to obtain a good at a price lower than his or her opportunity cost.

Question 36

David Ricardo made the statement that 'It is a maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy'.

Question 37

It takes Sandy one week to write three poems or to write a song. The opportunity cost to Sandy of one poem is 1/3 of a song.

Question 38

If it takes Australian workers fewer hours to produce every good than it takes Malaysian workers, Australia cannot gain from trade with Malaysia.

Question 39

The principle of comparative advantage was developed in Adam Smith's 1817 book Principles of Political Economy and Taxation.

Question 40

Comparative advantage will always occur when two parties have different opportunity costs in production.

Question 41

Table 3-1

According to Table 3-1:

A) the cattle farmer has an absolute advantage in both goods, and the potato farmer has a comparative advantage in meat
B) the cattle farmer has an absolute advantage in meat, and the potato farmer has a comparative advantage in potatoes
C) the cattle farmer has an absolute advantage in meat, and the potato farmer has a comparative advantage in neither goods
D) the cattle farmer has an absolute advantage in both goods, and the potato farmer has a comparative advantage in potatoes

Question 42

Economists' support of trade restrictions is still based largely on the failure of the principle of comparative advantage.

Question 43

The reason most people provide you with goods and services is because:

A) their beliefs make them feel charitable to you
B) they want to be your friend
C) they will receive something they want in return
D) they aren't as good at bargaining as you are

Question 44

Table 3-1

According to Table 3-1:

A) the potato farmer has an absolute advantage in meat, and the cattle farmer has an absolute advantage in potatoes
B) the potato farmer has an absolute advantage in potatoes, and the cattle farmer has an absolute advantage in meat
C) the potato farmer has an absolute advantage in meat, and the cattle farmer has an absolute advantage in meat
D) the potato farmer has an absolute advantage in neither goods, and the cattle farmer has an absolute advantage in both goods

Question 45

Table 3-1

Refer to Table 3-1. For the cattle farmer, the opportunity cost of one kg of potatoes is:

A) four hours of labour
B) two hours of labour
C) 1/4 kg of meat
D) 4 kg of meat

Question 46

Graph 3-1

These figures illustrate the production possibilities frontiers for Robinson Crusoe and Friday with 12 hours of labour.
Refer to Graph 3-1. For Friday, the opportunity cost of 1 kg of coconuts is:

A) 2/3 kg of fish
B) 3 kg of fish
C) 1 kg of fish
D) 2 kg of fish

Question 47

Table 3-1

According to Table 3-1:

A) the cattle farmer has a comparative advantage in potatoes, and the potato farmer has a comparative advantage in meat
B) the cattle farmer has a comparative advantage in both goods, and the potato farmer has a comparative advantage in neither goods
C) the cattle farmer has a comparative advantage in meat, and the potato farmer has a comparative advantage in potatoes
D) the cattle farmer has a comparative advantage in neither goods, and the potato farmer has a comparative advantage in both goods

Question 48

Table 3-1

Refer to Table 3-1. For the potato farmer, the opportunity cost of 1 kg of meat is:

A) eight hours of labour
B) four hours of labour
C) 2 kg of potatoes
D) 1/2 kg of potatoes

Question 49

Table 3-1

According to Table 3-1:

A) the potato farmer and cattle farmer both could benefit by the potato farmer specialising in meat, and the cattle farmer specialising in potatoes
B) the potato farmer and cattle farmer both could benefit by the potato farmer specialising in potatoes, and the cattle farmer specialising in meat
C) the potato farmer and cattle farmer both could benefit by the potato farmer specialising in neither goods, and the cattle farmer specialising in meat
D) the potato farmer and cattle farmer cannot benefit by specialisation and trade

Question 50

In the absence of international importing and exporting:

A) a country's consumption possibilities frontier is always below the production possibilities frontier
B) a country will be able to specialise more in producing goods it is most productive in
C) a country's production possibilities frontier is also its consumption possibilities frontier
D) a country will have access to greater product variety

Question 51

Table 3-1

Refer to Table 3-1. For the cattle farmer, the opportunity cost of 1 kg of meat is:

A) five hours of labour
B) one hour of labour
C) 1/4 kg of potatoes
D) 4 kg of potatoes

Question 52

A country's consumption possibilities frontier can be moved outside its production possibilities frontier:

A) by producing a greater variety of goods and services
B) by allocating resources differently
C) through trade
D) by lowering unemployment in the country

Question 53

International trade may make some individuals in a nation better off, while other individuals are made worse off.

Question 54

A butcher can produce only hamburgers, and a farmer can produce only potato chips. The butcher and the farmer both like both foods. They:

A) cannot gain from trade
B) could gain from trade under certain circumstances, but not always
C) could gain from trade because each would enjoy a greater variety of food
D) could gain from trade only if each were indifferent between hamburgers and potato chips

Question 55

Graph 3-1

These figures illustrate the production possibilities frontiers for Robinson Crusoe and Friday with 12 hours of labour.
Refer to Graph 3-1. For Robinson Crusoe, the opportunity cost of one kg of coconuts is:

A) 2 kg of fish
B) 1/2 kg of fish
C) 4 kg of fish
D) 1/4 kg of fish

Question 56

Graph 3-1

These figures illustrate the production possibilities frontiers for Robinson Crusoe and Friday with 12 hours of labour.
Refer to Graph 3-1. For Robinson Crusoe, the opportunity cost of one kg of fish is:

A) 2 kg of coconuts
B) 1/2 kg of coconuts
C) 4 kg of coconuts
D) 1/4 kg of coconuts

Question 57

Graph 3-1

These figures illustrate the production possibilities frontiers for Robinson Crusoe and Friday with 12 hours of labour.
Refer to Graph 3-1. For Friday, the opportunity cost of 1 kg of fish is:

A) 1 kg of coconuts
B) 3/2 kg of coconuts
C) 1/3 kg of coconuts
D) 2 kg of fish

Question 58

Table 3-1

Refer to Table 3-1. For the potato farmer, the opportunity cost of 1 kg of potatoes is:

A) eight hours of labour
B) 1/2 kg of meat
C) 2 kg of meat
D) four hours of labour

Question 59

In order to have a linear production possibilities frontier (one that is not bowed out), it must be that:

A) there are no trade-offs
B) the trade-off between two goods is constant
C) resources are being used efficiently
D) there is no technological advances occurring

Question 60

Table 3-1

According to Table 3-1:

A) the potato farmer has an absolute advantage in meat, and the cattle farmer has a comparative advantage in meat
B) the potato farmer has an absolute advantage in potatoes, and the cattle farmer has a comparative advantage in potatoes
C) the potato farmer has an absolute advantage in neither goods, and the cattle farmer has a comparative advantage in potatoes
D) the potato farmer has an absolute advantage in neither goods, and the cattle farmer has a comparative advantage in meat

Question 61

Table 3-2

Refer to Table 3-2. The opportunity cost of one kg of butter for John is:

A) 3/2 kg of rice
B) 4/3 kg of rice
C) 3/4 kg of rice
D) 2/3 kg of rice

Question 62

Graph 3-2

These figures illustrate the production possibilities available to Amy and Jim with 8 hours of labour.
According to Graph 3-2:

A) Amy has a comparative advantage in doughnuts, and Jim has a comparative advantage in coffee
B) Amy has a comparative advantage in both goods, and Jim has a comparative advantage in neither goods
C) Amy has a comparative advantage in coffee, and Jim has a comparative advantage in doughnuts
D) Amy has a comparative advantage in neither goods, and Jim has a comparative advantage in both goods

Question 63

Graph 3-1

These figures illustrate the production possibilities frontiers for Robinson Crusoe and Friday with 12 hours of labour.
According to Graph 3-1:

A) Robinson Crusoe has a comparative advantage in fish, and Friday has an absolute advantage in both goods
B) Robinson Crusoe has a comparative advantage in fish, and Friday has an absolute advantage in coconuts
C) Robinson Crusoe has a comparative advantage in fish, and Friday has an absolute advantage in neither goods
D) Robinson Crusoe has a comparative advantage in coconuts, and Friday has an absolute advantage in fish

Question 64

Table 3-2

According to Table 3-2:

A) Lee has a comparative advantage in butter, and John has a comparative advantage in rice
B) Lee has a comparative advantage in butter, and John has a comparative advantage in butter
C) Lee has a comparative advantage in rice, and John has a comparative advantage in butter
D) Lee has a comparative advantage in rice, and John has a comparative advantage in rice

Question 65

Table 3-2

Refer to Table 3-2. For John the opportunity cost of one kg of rice:

A) 3/4 kg of butter
B) 3/2 kg of butter
C) 4/3 kg of butter
D) 2/3 kg of butter

Question 66

Table 3-2

According to Table 3-2:

A) Lee has an absolute advantage in neither goods, and John has an absolute advantage in both goods
B) Lee has an absolute advantage in neither goods, and John has an absolute advantage in butter
C) Lee has an absolute advantage in rice, and John has an absolute advantage in butter
D) Lee has an absolute advantage in rice, and John has an absolute advantage in both goods

Question 67

Graph 3-2

These figures illustrate the production possibilities available to Amy and Jim with 8 hours of labour.
Refer to Graph 3-2. The opportunity cost of one coffee for Jim is:

A) three doughnuts
B) two doughnuts
C) 1/2 doughnut
D) 1/3 doughnut

Question 68

Table 3-2

According to Table 3-2:

A) Lee has an absolute advantage in neither goods, and John has a comparative advantage in butter
B) Lee has an absolute advantage in rice, and John has a comparative advantage in butter
C) Lee has an absolute advantage in rice, and John has a comparative advantage in neither goods
D) Lee has an absolute advantage in neither goods, and John has a comparative advantage in rice

Question 69

Graph 3-1

These figures illustrate the production possibilities frontiers for Robinson Crusoe and Friday with 12 hours of labour.
According to Graph 3-1:

A) Robinson Crusoe has an absolute advantage in coconuts, and Friday has a comparative advantage in fish
B) Robinson Crusoe has an absolute advantage in both goods, and Friday has a comparative advantage in coconuts
C) Robinson Crusoe has an absolute advantage in fish, and Friday has a comparative advantage in coconuts
D) Robinson Crusoe has an absolute advantage in neither goods, and Friday has a comparative advantage in fish

Question 70

Table 3-2

Refer to Table 3-2. For Lee the opportunity cost of one kg of rice is:

A) 4/3 kg of butter
B) 3/4 kg of butter
C) 2/3 kg of butter
D) 3/2 kg of butter

Question 71

Graph 3-1

These figures illustrate the production possibilities frontiers for Robinson Crusoe and Friday with 12 hours of labour.
According to Graph 3-1:

A) Robinson Crusoe has a comparative advantage in fish, and Friday has a comparative advantage in coconuts
B) Robinson Crusoe has a comparative advantage in coconuts, and Friday has a comparative advantage in fish
C) Robinson Crusoe has a comparative advantage in fish, and Friday has a comparative advantage in fish
D) Robinson Crusoe has a comparative advantage in fish, and Friday has a comparative advantage in neither goods

Question 72

Graph 3-2

These figures illustrate the production possibilities available to Amy and Jim with 8 hours of labour.
Refer to Graph 3-2. The opportunity cost of one doughnut for Amy is:

A) three coffees
B) two coffees
C) 1/2 coffee
D) 1/3 coffee

Question 73

Graph 3-1

These figures illustrate the production possibilities frontiers for Robinson Crusoe and Friday with 12 hours of labour.
According to Graph 3-1:

A) Robinson Crusoe has an absolute advantage in fish, and Friday has an absolute advantage in coconuts
B) Robinson Crusoe has an absolute advantage in coconuts, and Friday has an absolute advantage in fish
C) Robinson Crusoe has an absolute advantage in neither goods, and Friday has an absolute advantage in both goods
D) Robinson Crusoe has an absolute advantage in both goods, and Friday has an absolute advantage in neither goods

Question 74

Table 3-2

According to Table 3-2:

A) Lee has a comparative advantage in rice, and John has an absolute advantage in butter
B) Lee has a comparative advantage in butter, and John has an absolute advantage in rice
C) Lee has a comparative advantage in rice, and John has an absolute advantage in neither goods
D) Lee has a comparative advantage in butter, and John has an absolute advantage in neither goods

Question 75

Graph 3-2

These figures illustrate the production possibilities available to Amy and Jim with 8 hours of labour.
Refer to Graph 3-2. The opportunity cost of one doughnut for Jim is:

A) three coffees
B) two coffees
C) 1/2 coffee
D) 1/3 coffee

Question 76

Table 3-2

According to Table 3-2:

A) Lee and John both could benefit by Lee specialising in butter, and John specialising in rice
B) Lee and John both could benefit by Lee specialising in butter, and John specialising in butter
C) Lee and John both could benefit by Lee specialising in rice, and John specialising in butter
D) Lee and John both could benefit by Lee specialising in rice, and John specialising in rice

Question 77

Graph 3-2

These figures illustrate the production possibilities available to Amy and Jim with 8 hours of labour.
Refer to Graph 3-2. The opportunity cost of one coffee for Amy is:

A) three doughnuts
B) two doughnuts
C) 1/2 doughnut
D) 1/3 doughnut

Question 78

Table 3-2

Refer to Table 3-2. The opportunity cost of one kg of butter for Lee is:

A) 3/2 kg of rice
B) 4/3 kg of rice
C) 3/4 kg of rice
D) 2/3 kg of rice

Question 79

Graph 3-2

These figures illustrate the production possibilities available to Amy and Jim with 8 hours of labour.
According to Graph 3-2:

A) Amy has a comparative advantage in doughnuts, and Jim has an absolute advantage in coffee
B) Amy has a comparative advantage in doughnuts, and Jim has an absolute advantage in neither goods
C) Amy has a comparative advantage in coffee, and Jim has an absolute advantage in doughnuts
D) Amy has a comparative advantage in coffee, and Jim has an absolute advantage in neither goods

Question 80

Graph 3-2

These figures illustrate the production possibilities available to Amy and Jim with 8 hours of labour.
According to Graph 3-2:

A) Amy has an absolute advantage in both goods, and Jim has an absolute advantage in neither goods
B) Amy has an absolute advantage in neither goods, and Jim has an absolute advantage in both goods
C) Amy has an absolute advantage in coffee, and Jim has an absolute advantage in doughnuts
D) Amy has an absolute advantage in doughnuts, and Jim has an absolute advantage in coffee