Deck 2: The Power of Trade

Question 1

If instead of specialized doctors (neurologists,cardiologists,gastroenterologists,etc. )we had doctors who each knew the same things about all aspects of medicine,it would be:

A) better because then we could just go to one doctor with no loss of quality in medical care.
B) better because total medical knowledge in society would increase.
C) worse because the human brain is limited.
D) worse because total medical knowledge in society would decrease.

Answer 1

worse because total medical knowledge in society would decrease.

Question 2

Roses grown in Kenya travel to Amsterdam and ultimately to your local flower shop because:

A) the World Rose Commission coordinates the different elements of the rose industry.
B) markets coordinate the specialization and trade necessary for the flower industry to function.
C) of the trade agreement between the governments of Kenya and Amsterdam.
D) customers are willing to pay more for roses that pass through Amsterdam.

Answer 2

markets coordinate the specialization and trade necessary for the flower industry to function.

Question 3

Division of knowledge refers to:

A) dividing tasks into different subtasks and having one person perform all these subtasks.
B) people learning different tasks in which they specialize.
C) assigning one person to learn all the different ways to perform the same task.
D) limiting what each person knows about another person.

Answer 3

people learning different tasks in which they specialize.

Question 4

David sells his car,which he considers worthless,to Cameron for $200.Which of the following statements is true?

A) David and Cameron must have different preferences for the car.
B) This trade did not create value because Cameron is buying a car that David considers worthless.
C) Cameron is the only one made better off by the trade.
D) David is made better off by the trade,but Cameron is made worse off.

Question 5

Only a very small portion of people who use microwaves know how they work.This is an example of:

A) a production possibility frontier.
B) division of knowledge.
C) absolute advantage.
D) opportunity cost.

Question 6

Mark values his drum set at $800 and Ella values her guitar at $1,000.Suppose that Mark trades his drum set for Ella's guitar.

A) This trade makes Ella worse off by $200.
B) This trade makes Mark better off by $200.
C) Mark must value Ella's guitar for at least $800,and Ella must value Mark's drum set for at least $1,000.
D) This trade decreases total value by moving the guitar and drum away from people who placed a high value on them.

Question 7

Economic growth in the modern era is primarily due to the:

A) increases in the number of people.
B) increases in money.
C) defining of nation borders.
D) creation of new knowledge.

Question 8

Which of the following situations would lead to more starvation?

A) a world where everyone grows his or her own food and there is no trade
B) a world with trade and lots of specialization
C) a world with immense division of knowledge
D) a world where only some people specialize in food and everyone else produces something else

Question 9

The United States and the European Union are groups of semi-independent states that have come together under an agreement whereby resources can travel freely across borders and a common currency is in use.Which of the following statements best explains how this allows for the achievement of economies of scale?

A) Each state or country can now target larger markets and can thus earn more export revenue.
B) States and countries no longer have to worry about borders impeding trade.
C) Each state or country can adopt large-scale production techniques that allow lower per-unit costs of production.
D) The removal of trade borders and a common currency enhances trade between member states.

Question 10

One of the outcomes of specialization is that it leads to _____,which _____ the average cost of production.

A) smaller-scale production;lowers
B) smaller-scale production;raises
C) larger-scale production;raises
D) larger-scale production;lowers

Question 11

eBay creates value by:

A) helping sellers trick buyers into purchasing broken items.
B) moving goods like broken laser pointers from people who don't want them to people who do.
C) helping people with the same preferences find each other.
D) moving toys from children who want them to children who don't.

Question 12

Specialization and trade can _____ the per-unit cost of production because _____ .

A) decrease;it allows for more small-scale production.
B) decrease;it creates economies of scale associated with large-scale production
C) increase;it requires more expensive,specialized equipment
D) increase;more expensive labor is needed.

Question 13

Each of 100 people receives a random item from a grocery store and assigns it a value between 1 (low)and 10 (high).They trade those items among themselves for items they prefer rather than those they randomly received and then assign a second value (again,1 to 10)to the item that they end up with after the trading concludes.How would the sum of those values before trading compare with the sum after trading?

A) The value would stay the same because no new goods were introduced.
B) The value would stay the same because no one has a comparative advantage.
C) After trading,value would be lower because no one can specialize.
D) After trading,value would be higher because preferences are diverse.

Question 14

If each of us had to grow all of our own food:

A) civilization would collapse and billions of people would starve.
B) we would have more time for other pursuits.
C) people would be richer since they would no longer have to spend money on groceries.
D) the total amount of knowledge in society would increase since everyone would have to learn about farming.

Question 15

Knowledge increases ____________ and specialization __________ total output.

A) education;decreases
B) productivity;increases
C) perception;increases
D) economies of scale;decreases

Question 16

Facilitators of trade (such as Pierre Omidyar,the developer of eBay):

A) may become very rich since they are creating value for many individuals.
B) find it very hard to profit from their services since they are not directly involved in the trades.
C) typically only profit from their services if they are able to obtain government patent rights.
D) are usually seen as taking advantage of consumers.

Question 17

Which of the following is least likely a consequence of the division of knowledge?

A) The development of the computer tablet.
B) A totally self-sufficient family farm.
C) A new delivery method for cancer-fighting drugs.
D) The provision of a new bike path in your community.

Question 18

The main reason why specialization can raise productivity is that:

A) knowledge in human brains is limited.
B) some persons have more knowledge than others.
C) it is always good to know less than more.
D) it is impossible to learn anything well.

Question 19

Trade creates value because:

A) people get what they want.
B) raw materials are transformed into finished products.
C) people exchange things they do not want for things they do.
D) idle resources are put to use.

Question 20

Trade makes people better off when:

A) everyone wants the same things as other people.
B) some people are less productive than others.
C) people cannot specialize in certain activities.
D) people have different preferences.

Question 21

Why do people specialize?

A) Specialization increases productivity.
B) Specialization decreases people's dependence on one another.
C) People become self-sufficient when they specialize.
D) Most people only know how to do a few tasks.

Question 22

Suppose a famous baseball player,Alex Rodriguez,hires a high school student to paint his house.Which of the following is most likely TRUE?

A) The opportunity cost of painting a house is higher for Alex Rodriguez than for the high school student.
B) The opportunity cost of painting a house is lower for Alex Rodriguez than for the high school student.
C) The opportunity cost of painting a house is the same for Alex Rodriguez as for the high school student.
D) The opportunity cost of painting a house is zero for Alex Rodriguez and is negative for the high school student.

Question 23

As trade becomes more widespread,specialization ______,which in turn ______ productivity.

A) decreases;decreases
B) increases;increases
C) decreases;increases
D) increases;decreases

Question 24

Which of the following statements is TRUE? I.Compared with a modern economy,the division of knowledge is greater in a primitive economy because every family is self-sufficient: growing their own food,making their own clothes,and constructing their own shelter.
II.Nobody understands the entire process of producing even the simplest products,like a lead pencil,in a modern economy.
III.The collapse of communism and the opening of the Chinese economy to the rest of the world have increased the division of knowledge,leading to increased world output.

A) I only
B) III only
C) II and III only
D) I,II,and III

Question 25

Owen Wilson is an actor who has acted in many action comedy films.In contrast,Tom Cruise has acted in many serious action films.How might the theory of specialization be applied to them?

A) Owen Wilson has fully specialized in action comedy movies while Tom Cruise has fully specialized in serious action movies.
B) Due to filmography protectionism,Owen Wilson is unable to secure serious action roles,and Tom Cruise is unable to secure action comedy roles.
C) Casting directors see Owen Wilson as relatively better at action comedy roles and Tom Cruise as relatively better at serious action roles and cast them accordingly.
D) Owen Wilson does not have the talent necessary to act in more serious films.

Question 26

Without trade,the knowledge used by an entire economy would be about the same as the knowledge had by:

A) all intelligent people combined.
B) a large number of people.
C) one person.
D) no one.

Question 27

Trade barriers like the Berlin Wall:

A) increased the number of scientists and engineers.
B) added billions of minds to the global division of knowledge.
C) decreased innovation and global cooperation.
D) prevented restrictive monopolistic practices.

Question 28

Economies can grow due to:

A) the extent to which all individuals are educated in all areas of production.
B) government policies.
C) the extent to which markets facilitate specialization through trade.
D) barriers to trade that promote the growth of domestic markets.

Question 29

Which of the following best explains the term "specialization" with respect to trade?

A) Specialization occurs when a people concentrate their productive resources on the goods and services they can produce most efficiently.
B) Specialization occurs when one person can produce more of a particular good than another person.
C) Specialization refers to the absolute advantage that a person enjoys in the production of goods and services.
D) Specialization refers to the ability of a person to produce more of a good than his or her trading partners.

Question 30

A rock carving from ancient Norway depicts two identical people doing different jobs in the same boat: one uses a bow to hunt while the other paddles.How does this early example illustrate the benefits of trade?

A) One prefers to hunt while the other prefers to paddle the boat;this is an example of diverse preferences.
B) One learns to be very good at paddling and one learns to be very good at hunting;this is an example of specialization and division of knowledge.
C) The paddler is stronger than the hunter so the paddler sacrifices a lot by hunting;this is an example of comparative advantage.
D) There is no trade in this example since no goods are being exchanged.

Question 31

Jesse is good at math and excellent at making friends and Addae is equally good at both.Mathematically and socially challenged Jordan wants to hire tutors to help in each area.Who should tutor Jordan in which area to maximize Jordan's college experience?

A) Jesse and Addae should tutor Jordan in both math and social skills.
B) Jesse should teach math and Addae should teach how to make friends.
C) Jesse and Addae should both teach how to make friends.
D) Jesse should teach how to make friends and Addae should teach math.

Question 32

Absolute advantage derives from which of the following?

A) the lowest cost of production
B) the most suitable climate
C) the least expensive labor force
D) the best educated labor force

Question 33

The relationship between trade and specialization is best characterized as follows:

A) Trade decreases specialization,which in turn increases the demand for trade.
B) Trade decreases specialization,which in turn decreases the demand for trade.
C) Trade increases specialization,which in turn increases the demand for trade.
D) Trade increases specialization,which in turn decreases the demand for trade.

Question 34

Which of the following best describes the principle of comparative advantage?

A) Some people can produce the same good better than other producers can.
B) Someone has the ability to produce the same good using fewer inputs than another producer.
C) Someone has the ability to produce the same good for the lowest opportunity cost.
D) To produce more of one good,people have to produce less of another good.

Question 35

Utilizing comparative advantage can best be exemplified as:

A) your lawyer word-processing her own legal briefs.
B) the CEO of Microsoft programming his own computer.
C) the president of your university teaching a class again.
D) a world-renowned chef hiring someone to cook meals for his family.

Question 36

The ability of one producer to produce one good or service using fewer inputs than another producer is:

A) comparative advantage.
B) absolute advantage.
C) opportunity cost.
D) competition.

Question 37

If the goal of education were solely to support economic growth,the ideal graduate would be a:

A) jack-of-all-trades but master of none (where a "jack" is a serviceable tradesperson).
B) jack-of-one-trade and master of one.
C) jack-of-no-trades and master of none.
D) jack-of-some-trades but master of none.

Question 38

Which of the following is typically a result of the division of knowledge?

A) The society runs with the knowledge of a few persons.
B) Each person has the same knowledge as everyone else.
C) Labor productivity is higher..
D) No one specializes in any activity.

Question 39

Fourteenth-century potters in the Chinese city of Jingdezhen developed the technology to heat a kiln at 1,300 degrees Celsius and produce porcelain,or "china," which was particularly popular in Persia where the Koran forbade serving food on gold or silver and wealthy families were anxious for a legal way to impress their dinner guests.The potters also imported Persian cobalt to create the blue dye for the porcelain (local cobalt was not as bold in color).Which advantage(s)from trade is(are)illustrated in this passage?

A) differences in preferences
B) specialization
C) comparative advantage
D) The passage illustrates all of these advantages.

Question 40

The enormous variety of goods and services that we consume each day can be attributed mainly to:

A) government regulations.
B) home production.
C) specialization and trade.
D) early craftsmen handing down their knowledge.

Question 41

The real cost of producing a good is:

A) the dollar cost of inputs used to make the item.
B) the opportunity cost of producing the good.
C) the resources that were used to make the good.
D) the dollar amount it costs to sell the good.

Question 42

According to the theory of comparative advantage:

A) every country can produce some good with a lower opportunity cost.
B) every country should produce goods that involve high opportunity costs.
C) some countries have a comparative advantage in producing every good.
D) some countries should import every good from other countries.

Question 43

The production possibilities frontier shows:

A) the combinations of outputs a country can produce given its resources and productivity.
B) the combinations of inputs that a country has given its outputs and productivity.
C) the combinations of outputs and resources that a country possesses given its productivity.
D) the maximum level of a country's productivity given its resources and outputs.

Question 44

The theory of comparative advantage is:

A) rarely relevant for identifying whether gains from trade can be obtained.
B) always relevant for identifying whether gains from trade can be obtained.
C) not true for nations,though it may be true for individuals.
D) true for nations,but it is not true for business or individuals.

Question 45

Use the following to answer questions
Figure: PPF Nickel & Textiles
(Figure: PPF Nickel & Textiles)Refer to the figure.How many tons of textiles does Australia give up to produce one ton of nickel?

A) 1/3
B) 1/2
C) 2
D) 3

Question 46

Anita is a wonderful baker and can bake 10 cakes in a day,but then has no time left to make cookies.If she bakes only cookies,she can make 200 cookies in a day.John can make equally delicious cakes and cookies but can only make seven cakes or 100 cookies in a day.Based on this information,which of the following statements is true?

A) Anita should split her time between cakes and cookies.John should bake cakes.
B) Anita should bake cakes and John should bake cookies.
C) Anita and John should split their time equally between cakes and cookies.
D) Anita should bake cookies and John should bake cakes.

Question 47

Comparative advantage is determined by which of the following?

A) efficiency
B) bargaining power
C) opportunity cost
D) productivity

Question 48

On a production possibilities frontier a trade-off can be illustrated as:

A) an outward shift.
B) an inward shift.
C) a movement from a point inside the frontier to one on the frontier.
D) a movement along the frontier itself.

Question 49

According to the theory of comparative advantage,a country should specialize in producing a good that involves:

A) more inputs than those in other countries.
B) fewer inputs than those in other countries.
C) a higher opportunity cost than that of other countries.
D) a lower opportunity cost than that of other countries.

Question 50

Use the following to answer questions
Figure: PPF Goods X & Y
(Figure: PPF Goods X & Y)Refer to the figure.Which of the points representing various consumption possibilities for the country portrayed above is only attainable through foreign trade?

A) Point A
B) Point B
C) Point C
D) Both points C and B

Question 51

Suppose France can produce four phones or three computers with one unit of labor,and Sweden can produce one phone or two computers with one unit of labor.If France can trade only with Sweden,then the theory of comparative advantage suggests that:

A) France should specialize in producing phones and import computers from Sweden.
B) France should specialize in producing computers and import phones from Sweden.
C) France should produce both phones and computers,and import nothing from Sweden.
D) France should import both phones and computers from Sweden.

Question 52

Use the following to answer questions
Figure: PPF Mexico & United States
(Figure: PPF Mexico & United States)Use the figure in which both Mexico and the United States each have 24 units of labor.The opportunity costs of producing one shirt are:

A) one computer for Mexico and 1/6 of a computer for the United States.
B) 1/6 of a computer for Mexico and one computer for United States.
C) one computer for both Mexico and the United States.
D) 1/6 of computer for both Mexico and the United States.

Question 53

Use the following to answer questions
Figure: PPF Mexico & United States
(Figure: PPF Mexico & United States)Use the figure in which both Mexico and the United States each have 24 units of labor.The opportunity costs of producing one computer are:

A) six shirts for Mexico and one shirt for the United States.
B) 1/6 of a shirt for both Mexico and the United States.
C) one shirt for Mexico and 1/6 of a shirt for the United States.
D) six shirts for both Mexico and the United States.

Question 54

Use the following to answer questions
Figure: PPF Nickel & Textiles
(Figure: PPF Nickel & Textiles)Refer to the figure.What is the maximum amount of nickel China can produce?

A) 10 tons
B) 8 tons
C) 6 tons
D) 4 tons

Question 55

Use the following to answer questions
Figure: PPF Goods X & Y
(Figure: PPF Goods X & Y)Refer to the figure.Point A represents an allocation of resources that is:

A) efficient.
B) inefficient.
C) impossible.
D) the result of trade.

Question 56

Which of the following statements shows how absolute advantage can be distinguished from comparative advantage?

A) Absolute advantage refers to the ability to produce a good using fewer inputs,while comparative advantage is based on the monthly amount.
B) Absolute advantage is based on the yearly production amount that a country can produce,while comparative advantage is based on the monthly production amount.
C) Absolute advantage refers to the ability to produce a larger amount of goods with the same number of inputs,whereas comparative advantage refers to the ability to have the lowest opportunity cost of production.
D) Absolute advantage is based on the amount of land a country has to use,while comparative advantage is based on the cost of the labor.

Question 57

Use the following to answer questions
Figure: PPF Nickel & Textiles
(Figure: PPF Nickel & Textiles)Refer to the figure.What is the maximum amount of textiles China can produce?

A) 10 tons
B) 8 tons
C) 6 tons
D) 4 tons

Question 58

Anita is a wonderful baker and can bake 10 cakes in a day,but then has no time left to make cookies.If she bakes only cookies,she can make 200 cookies in a day.John can make equally delicious cakes and cookies but can only make seven cakes or 100 cookies in a day.Based on this information,which of the following statements is true?

A) Anita has the comparative advantage in the production of cakes.
B) John has the comparative advantage in the production of cakes.
C) John has the absolute advantage in the production of cookies.
D) Anita has the comparative advantage in the production of both cakes and cookies.

Question 59

Use the following to answer questions
Figure: PPF Goods X & Y
Suppose a country without any international trade opens its borders to international trade.After specialization how will its location on its production possibility frontier change?

A) The country moves from inside the PPF to on the PPF.
B) The country moves from on the PPF to beyond the PPF.
C) The country moves along the PPF toward its comparative advantage.
D) The country moves along the PPF away from its comparative advantage.

Question 60

A producer has a comparative advantage over other producers if his production of the good involves:

A) more inputs.
B) fewer inputs.
C) a higher opportunity cost.
D) a lower opportunity cost.

Question 61

Adam Smith:

A) believed that trade in local communities is good for the economy,but trading with people located in foreign countries is bad for the economy.
B) did not discuss or have an opinion about international trade.
C) argued that it is beneficial to buy a product if the seller can sell it to us cheaper than we can make it for ourselves,regardless of the product's country of origin.
D) believed that trade in local communities is bad for the economy,but trading with people located in foreign countries is good for the economy.

Question 62

Which of the following is TRUE regarding trade and wages?

A) Trade can increase wages by increasing the productivity of labor.
B) Trade helps to equalize wages between high- and low-productivity countries.
C) Countries with low productivity levels will always have lower wages than high-productivity nations whether they trade or not.
D) Trade directly increases productivity,which in turn increases wages.

Question 63

When a rich country that has absolute advantages in all products begins trading with a poor country:

A) the wage in the rich country will go down and the wage in the poor country will go up.
B) the wages in both countries will go up.
C) the wages in both countries will go down.
D) the wage in the rich country will go up and the wage in the poor country will go down.

Question 64

Increased trade has also led to:

A) increased globalization of economies.
B) a more equal distribution of wealth across countries.
C) a decline in human cooperation.
D) more specialization and thus less globalization.

Question 65

According to Adam Smith:

A) trade is a way for rich people to exploit poor people.
B) trade within a nation benefits people but international trade does not.
C) trade does not benefit anyone.
D) people buy goods for which they have higher opportunity costs than others.

Question 66

The trade networks of the Roman Empire:

A) fell apart in the Medieval era,leading to the Dark Ages.
B) were not of great importance.
C) show that globalization is a new phenomenon.
D) did not facilitate the transport of goods from different parts of the world.

Question 67

The Dark Ages was a period in which trade:

A) expanded because of rising transportation and communication costs.
B) expanded because of falling transportation and communication costs.
C) decreased because world markets became more isolated.
D) decreased because world markets became less isolated.

Question 68

According to the textbook,globalization:

A) never took place.
B) began as far back as the Roman Empire.
C) began in the twenty-first century.
D) occurred only during the Dark Ages.

Question 69

Gains from international trade are best characterized as potential gains from:

A) importation.
B) exportation.
C) neither importation nor exportation.
D) both importation and exportation.

Question 70

A country produces and consumes eight units of sugar cane costing $50 per unit and two iPods that cost $200 each.After specialization and trade,that country consumes eight units of sugar cane and four iPods.With 24 units of labor,what are wages in this country?

A) $33.33 without trade and $50 with trade
B) $50 without trade and $75 with trade
C) $50 without trade and $33.33 with trade
D) $33.33 without trade and $75 with trade

Question 71

Use the following to answer questions
Figure: PPF Mexico & United States
(Figure: PPF Mexico & United States)Use the above figure in which both Mexico and the United States each have 24 units of labor.Mexico has a comparative advantage in ______ and the United States has a comparative advantage in ______.

A) computers;shirts
B) shirts;computers
C) computers;computers
D) shirts;shirts

Question 72

According to the theory of trade,if two countries trade with each other:

A) consumption in one country will fall and wages in that country will also fall.
B) wage costs will remain low if both countries specialize in producing the goods for which they have a comparative advantage.
C) trade raises labor productivity and wages of both countries.
D) wages in the country with a comparative advantage will rise and wages in the country without a comparative advantage will fall.

Question 73

Globalization is:

A) pushed through by politicians while citizens are reacting to disasters and upheavals.
B) the advance of human cooperation across national boundaries.
C) the advance of human conflict across national boundaries.
D) supported only by greedy corporations.

Question 74

In many universities,graduate students are employed to teach introductory undergraduate courses,even though the full professors at these universities have more experience and could potentially teach these courses better.Which of the following best explains why universities choose to hire graduate students instead of full professors to teach their introductory courses?

A) Graduate students are cheaper.
B) The opportunity cost of teaching an introductory course is higher for full professors than for graduate students.
C) The opportunity cost of teaching an introductory course is higher for graduate students than for full professors.
D) Introductory classes are the best place for graduate students to build their teaching skills.

Question 75

The development of shipping containers enabled companies to move freight quickly between ships,trucks,and trains by loading a single large container with many different goods and then moving the container.Before the container,freight had to be loaded and unloaded one palette,barrel,or box at a time.What impact did the shipping container have on globalization? Why?

A) an increase,because it allowed faster spread of communication
B) an increase,because it decreased transportation costs
C) a decrease,because it caused many dock workers to lose their job
D) a decrease,because it caused the amount of human cooperation to fall

Question 76

High-productivity workers fear trade because they think they cannot compete with workers in low-productivity countries.Low-productivity workers fear trade because they think they cannot compete with workers in high-productivity countries.Which of these fears is justified?

A) The fears of workers in high-productivity countries are justified;the fears of workers in low-productivity countries are not.
B) The fears of workers in low-productivity countries are justified;the fears of workers in high-productivity countries are not.
C) Both sets of fears are justified.
D) Neither set of fears is justified.

Question 77

Wage rates are primarily based on the:

A) level of comparative advantage.
B) extent to which the country is involved in trade with other countries.
C) productivity of labor.
D) institutional factors present.

Question 78

What is the difference between trade among individuals and trade among nations?

A) The logic of trade and specialization is stronger for individuals than it is for nations.
B) The logic of trade and specialization is stronger for nations than it is for individuals.
C) The logic of trade and specialization applies equally well among individuals and nations.
D) Without looking at specific cases,we can't say much about the logic of trade and specialization for individuals and nations.

Question 79

Adam Smith said,"It is the 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.The tailor does not attempt to make his own shoes,but buys them of the shoemaker.The shoemaker does not attempt to make his own clothes,but employs a tailor." Which of the following concepts best illustrates Smith's intent with this statement?

A) comparative advantage
B) incentives matter
C) scarcity
D) production possibilities frontier

Question 80

Trade tends to:

A) increase wages in developed countries,but decrease wages in lesser-developed countries.
B) decrease wages in developed countries,but increase wages in lesser-developed countries.
C) decrease wages in all countries.
D) increase wages in all countries.