Question 1

If there is an inverse relationship between two variables, the graph relating the two variables will be:
A) upward-sloping.
B) downward-sloping.
C) vertical.
D) horizontal.

Accepted Answer

An inverse relationship between two variables means that as one variable increases, the other decreases. This results in a downward-sloping graph.

Question 2

Trade based on comparative advantage benefits:
A) consumers in all countries.
B) consumers in some countries but hurts consumers in other countries.
C) neither producers nor consumers.
D) producers in all countries but not consumers.

Accepted Answer

Trade based on comparative advantage allows countries to specialize in producing goods where they have a lower opportunity cost, leading to more efficient production and lower prices, which benefits consumers in all countries.

Question 3

What kind of relationship exists between the price of gas and the quantity demanded for gas if the quantity demanded for gas falls when the price of gas increases?
A) Direct
B) Inverse
C) Normal
D) Perverse

Accepted Answer

The relationship is inverse because as the price of gas increases, the quantity demanded decreases, which is consistent with the law of demand.

Question 4

Refer to the graph below.  Point A represents a price of:
A) 3 and a quantity of 3.
B) 3 and a quantity of 5.
C) 5 and a quantity of 3.
D) 5 and a quantity of 5.

Accepted Answer

The answer of Refer to the graph below.  Point...

Question 5

If there is a direct relationship between two variables, the graph relating those two variables will be:
A) upward-sloping.
B) downward-sloping.
C) vertical.
D) horizontal.

Accepted Answer

A direct relationship between two variables means that as one variable increases, the other also increases, resulting in an upward-sloping graph.

Question 6

Countries gain from trade by producing:
A) the goods they produce at the highest opportunity cost.
B) the goods they can produce at the lowest opportunity cost.
C) where the production possibility curve has a slope of -1.
D) all goods in equal amounts.

Accepted Answer

Countries gain from trade by specializing in the production of goods for which they have a comparative advantage, meaning they can produce these goods at the lowest opportunity cost.

Question 7

If U.S. workers are paid $16 an hour and Indian workers are paid the equivalent of $4 an hour but U.S. workers can produce four times as many goods as Indian workers in the same amount of time:
A) workers in the United State are paid too much.
B) production will migrate to the United States.
C) production will migrate to India.
D) there is no reason to move production from the United States to India.

Accepted Answer

U.S. workers produce four times as much as Indian workers, making their productivity equal to the wage difference. Therefore, there is no cost advantage to moving production to India.

Question 8

Which of the following is an example of the law of one price?
A) Exchange rates tend to have equivalent values. For example, one euro equals one U.S. dollar.
B) Because people have essentially the same basic needs wherever they live, they tend to buy the same bundle of goods.
C) Because wages are so much lower in China, eventually all U.S. jobs will be outsourced to China, leaving the United States to import all goods at one price.
D) Because their countries have similar institutions, computer programmers in Germany and the United States either are or will be paid about the same.

Accepted Answer

The answer of Which of the following is an example...

Question 9

The text argues that the United States has had a comparative advantage in goods and services that:
A) require creativity and innovation.
B) are artistic and well crafted.
C) are mass-produced.
D) are luxury goods.

Accepted Answer

The answer of The text argues that the United States...

Question 10

If the hourly wage of U.S. workers is $16, the hourly wage of Mexican workers is $2, and U.S. workers produce 9 times as much output per hour as Mexican workers, then, all else equal, it would be efficient to locate production facilities in:
A) the United States since the cost per unit of output will be higher.
B) the United States since the cost per unit of output will be lower.
C) Mexico since the cost per unit of output will be higher.
D) Mexico since the cost per unit of output will be lower.

Accepted Answer

The cost per unit of output is lower in the United States because U.S. workers produce 9 times as much output per hour, making their effective cost per unit of output lower despite the higher hourly wage.

Question 11

If the hourly wage of German workers is $6, the hourly wage of Canadian workers is $10, and German workers produce half as much output per hour as Canadian workers, all else equal, it would be efficient to locate production facilities in:
A) Germany since the cost per unit of output will be higher.
B) Germany since the cost per unit of output will be lower.
C) Canada since the cost per unit of output will be higher.
D) Canada since the cost per unit of output will be lower.

Accepted Answer

The answer of If the hourly wage of German workers...

Question 12

The Apple Watch was designed by Apple in the United States, manufactured in factories in Asia, and sold throughout the world. Many other firms, both American and foreign, began to try to develop alternatives to the Apple Watch. The Apple Watch is an example of American comparative advantage in:
A) innovation.
B) mass production.
C) hand production.
D) consumerism.

Accepted Answer

The Apple Watch exemplifies American comparative advantage in innovation, as it was designed by Apple, a company known for its innovative products and technology.

Question 13

Which of the following is an example of the law of one price in action?
A) Prices are just one of the many factors that firms use when deciding where to locate production.
B) If one county has a comparative advantage in producing a particular good, another country must have a comparative advantage in producing another good.
C) Wages in India are lower than wages in the United States, and so firms move their call centers to India. This tends to raise wages in India and depress wages in the United States.
D) Because most industries in the United States are dominated by one or two firms, the dominant firm sets the price and other firms in the industry follow.

Accepted Answer

The law of one price suggests that identical goods should sell for the same price in different locations when there are no transportation costs and no differential taxes applied in the two locations. The movement of call centers to India due to lower wages is an example of this principle, as it leads to wage adjustments that reduce the price differential.

Question 14

In China, many farmers have switched from producing rice to producing vegetables and fruit because they can earn a great deal more money from these specialty crops. Within China, there are some who applaud this change, but others worry that China soon may become dependent on rice imports. Even with the low cost of Chinese labor, does the fact that China is importing rice suggest that other countries now have a comparative advantage in rice production?
A) No, China must have a comparative advantage in rice if it imports rice.
B) Yes, but only if there are other countries with even cheaper labor.
C) Yes, countries with more expensive labor can offset that cost with abundant land and farm equipment.
D) Maybe, because rice is a standardized product, the role of innovation and creativity in its production is important.

Accepted Answer

China may import rice if other countries have a comparative advantage due to factors like abundant land and advanced farm equipment, which can offset higher labor costs.

Question 15

Juan works at Texas Burgers in El Paso and earns $8.00 per hour. His twin brother Felipe works in Mexico Burgers in Ciudad Juarez just across the border and earns $3.00 per hour for exactly the same work. An economist looking at this situation sees:
A) an incentive for Felipe to cross the border to get a job and thus reduce the gap.
B) an incentive for Felipe to quit and find another job in Mexico.
C) the tendency of the rich to get richer and the poor to get poorer, widening the gap.
D) evidence that the law of one price has no support in the real world.

Accepted Answer

Felipe has an incentive to cross the border to work where wages are higher, which could reduce the wage gap.

Question 16

If the hourly wage of U.S. workers is $16, the hourly wage of Mexican workers is $2, and U.S. workers produce 5 times as much output per hour as Mexican workers, then, other things equal, it would be efficient to locate production facilities in:
A) the United States since the cost per unit of output will be higher.
B) the United States since the cost per unit of output will be lower.
C) Mexico since the cost per unit of output will be higher.
D) Mexico since the cost per unit of output will be lower.

Accepted Answer

The answer of If the hourly wage of U.S. workers...

Question 17

Which of the following factors will help the United States regain comparative advantages in industries in which it has lost comparative advantages?
A) The value of the U.S. dollar falls.
B) The value of the U.S. dollar rises.
C) The United States imports more goods.
D) Wages in the United States rise.

Accepted Answer

A fall in the value of the U.S. dollar makes U.S. goods cheaper for foreign buyers, potentially increasing exports and helping the U.S. regain comparative advantages in certain industries.

Question 18

Adam Smith argued that greater specialization and division of labor are likely to:
A) improve standards of living.
B) reduce standards of living.
C) reduce worker productivity.
D) replace workers with machines, resulting in massive unemployment.

Accepted Answer

Adam Smith argued that specialization and division of labor lead to increased efficiency and productivity, which in turn can improve standards of living.

Question 19

The morel is a prized mushroom that is often abundant in the Western United States in years after forest fires. Suppose two companies are buying morels from workers willing to find them. One company offers to pay workers $5.00 per pound, and the other company will pay workers only $4.00 per pound. Economists would say that:
A) the company willing to pay only $4.00 has a comparative advantage in selling morels.
B) the higher-paying company will attract the more creative and innovative pickers and the lower-paying company will attract the others.
C) the lower-paying company will attract the more creative and innovative pickers and the higher-paying company will attract the others.
D) this situation violates the law of one price and is not likely to persist.

Accepted Answer

The law of one price suggests that identical goods should sell for the same price in an efficient market. The difference in prices offered by the two companies for the same product (morels) is likely to be temporary as market forces will push towards a single price.

Question 20

According to the law of one price,
A) it is illegal to pay different people different amounts for the same work.
B) it is illegal to charge different people different amounts for the same product.
C) competition, combined with transferable goods and resources, drives the prices of similar goods toward equilibrium.
D) competition, combined with inherent advantages, drives the prices of similar goods toward equality.

Accepted Answer

The law of one price states that in an efficient market, identical goods should have only one price due to competition and the ability to transfer goods and resources, leading to price equilibrium.

Quiz 2: The Production Possibility Model, Trade, and Globalization

If there is an inverse relationship between two variables, the graph relating the two variables will be:

Trade based on comparative advantage benefits:

What kind of relationship exists between the price of gas and the quantity demanded for gas if the quantity demanded for gas falls when the price of gas increases?

Refer to the graph below. Point A represents a price of:

If there is a direct relationship between two variables, the graph relating those two variables will be:

Countries gain from trade by producing:

If U.S. workers are paid $16 an hour and Indian workers are paid the equivalent of $4 an hour but U.S. workers can produce four times as many goods as Indian workers in the same amount of time:

Which of the following is an example of the law of one price?

The text argues that the United States has had a comparative advantage in goods and services that:

If the hourly wage of U.S. workers is $16, the hourly wage of Mexican workers is $2, and U.S. workers produce 9 times as much output per hour as Mexican workers, then, all else equal, it would be efficient to locate production facilities in:

If the hourly wage of German workers is $6, the hourly wage of Canadian workers is $10, and German workers produce half as much output per hour as Canadian workers, all else equal, it would be efficient to locate production facilities in:

The Apple Watch was designed by Apple in the United States, manufactured in factories in Asia, and sold throughout the world. Many other firms, both American and foreign, began to try to develop alternatives to the Apple Watch. The Apple Watch is an example of American comparative advantage in:

Which of the following is an example of the law of one price in action?

Juan works at Texas Burgers in El Paso and earns $8.00 per hour. His twin brother Felipe works in Mexico Burgers in Ciudad Juarez just across the border and earns $3.00 per hour for exactly the same work. An economist looking at this situation sees:

If the hourly wage of U.S. workers is $16, the hourly wage of Mexican workers is $2, and U.S. workers produce 5 times as much output per hour as Mexican workers, then, other things equal, it would be efficient to locate production facilities in:

Which of the following factors will help the United States regain comparative advantages in industries in which it has lost comparative advantages?

Adam Smith argued that greater specialization and division of labor are likely to:

According to the law of one price,