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 means that as one variable increases, the other variable decreases. This results in a downward-sloping graph.

Question 2

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

An upward-sloping graph indicates a positive correlation, meaning that as one variable increases, so does the other. This indicates a direct relationship between the two variables. A downward-sloping graph would indicate a negative correlation, meaning that as one variable increases, the other decreases, indicating an indirect relationship. A vertical or horizontal graph indicates no relationship between the two variables.

Question 3

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 passage highlights that the Apple Watch was designed by Apple in the United States, which suggests that the US has a comparative advantage in innovation.

Question 4

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 competition, combined with transferable goods and resources, drives the prices of similar goods toward equilibrium. Essentially, if there are no barriers preventing competition and the goods or resources being sold are the same, buyers will purchase from the supplier with the lowest price. This competition will eventually drive the prices toward a single price, or equilibrium. This principle applies to both goods and resources, and is one of the key concepts in international trade theory.

Question 5

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 states that identical goods should have the same price in different markets. In this example, firms move their call centers to India because wages are lower there, implying that labor is cheaper in India. This means that the price of labor should be lower in India than in the United States. As a result, the law of one price is in action.

Question 6

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

When the value of the U.S. dollar falls, it makes U.S. goods cheaper for foreign buyers, which makes American products more attractive in comparison to those produced abroad. This can help the U.S. regain its comparative advantage in industries in which it has lost ground to foreign competitors.

Question 7

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 8

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

While the hourly wage of U.S. workers is higher than that of Mexican workers, the higher productivity of U.S. workers means that the cost per unit of output will be lower in Mexico. Therefore, it would be efficient to locate production facilities in Mexico.

Question 9

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 believed that greater specialization and division of labor would lead to increased efficiency and productivity, which would ultimately result in higher standards of living for society as a whole. This is because individuals could focus on their area of expertise, and goods could be produced more efficiently and at a lower cost.

Question 10

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 benefits consumers in all countries as it allows countries to specialize in producing the goods and services that they are most efficient at, resulting in lower prices and greater availability for consumers. Additionally, it can also increase competition and innovation, leading to further benefits for consumers.

Question 11

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 efficient markets. If one company offers more money for the same work, workers are likely to prefer that company, making the situation with significantly different pay rates unsustainable in a competitive market.

Question 12

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

This is an example of an inverse relationship between price and quantity demanded. When the price of gas increases, people tend to use less of it, leading to a decrease in quantity demanded.

Question 13

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 law of one price states that in competitive markets free of transportation costs and trade barriers, identical goods sold in different countries must sell for the same price when their prices are expressed in the same currency. Therefore, because computer programmers in Germany and the United States have similar institutional factors, they will be paid about the same.

Question 14

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 calculated by dividing the hourly wage by the output per hour. For U.S. workers, this is $16/9 units, and for Mexican workers, it is $2/1 unit. The U.S. has a lower cost per unit ($16/9 < $2), making it more efficient to locate production in the United States.

Question 15

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

Since Canadian workers have a higher hourly wage and produce double the output per hour compared to German workers, the cost per unit of output in Canada would be lower. Therefore, it would be efficient to locate production facilities in Canada.

Question 16

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

The wage differential between the two brothers creates an incentive for Felipe to cross the border and work in Texas Burgers, which would reduce the gap between the two wages. This is an example of how market forces can work to equalize wages between different regions or countries.

Question 17

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

The productivity of U.S. workers is such that they produce four times as many goods as Indian workers for four times the pay, making the cost of labor per good produced the same in both countries. This eliminates the labor cost advantage as a reason for moving production.

Question 18

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

The fact that China is importing rice suggests that other countries have a comparative advantage in rice production, even with the low cost of Chinese labor. However, this advantage may not necessarily come from labor costs alone but also from factors such as abundant land and farm equipment. Therefore, option C is the best choice. Option A is incorrect because a country can import a product despite having a comparative advantage in producing it if it can trade that production for a greater benefit. Option B is incorrect because labor costs are not the only determining factor in comparative advantage. Option D is incorrect because while the role of innovation and creativity can be important in rice production, it is not relevant to the question of comparative advantage.

Question 19

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

Producing the goods they can produce at the lowest opportunity cost allows countries to be efficient and maximize their resources. This leads to lower costs of production and a comparative advantage in certain goods, which they can trade for goods that may be more expensive or difficult for them to produce.

Question 20

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 text states that the United States has a comparative advantage in goods and services that require creativity and innovation.

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:

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

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:

According to the law of one price,

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

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

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

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:

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

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?

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

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:

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 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:

Countries gain from trade by producing:

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