Question 1

Which of the following appropriately applies the law of comparative advantage?
A) Countries with small amounts of labor relative to capital should specialize in producing labor-intensive commodities.
B) Since Mexican labor is cheaper than American labor, trade between the countries results in exploitation of American workers.
C) Since workers in countries such as the United States utilize larger amounts of capital than workers in less developed nations, trade between capital-rich and capital-poor nations results in the exploitation of labor in the less developed countries.
D) Countries that are low cost producers of agricultural products should trade those products for goods they can produce only at a high opportunity cost.

Accepted Answer

The law of comparative advantage suggests that countries should specialize in producing goods for which they have a lower opportunity cost and trade for goods that would be more costly for them to produce.

Question 2

According to the law of comparative advantage, both individuals and nations will be able to produce a larger joint output if each productive activity is undertaken by
A) the high opportunity cost producer.
B) the low opportunity cost producer.
C) the producer who is able to hire workers at the lowest wage.
D) the party that can complete the productive activity most rapidly.

Accepted Answer

The law of comparative advantage states that overall production increases when each party specializes in the activity for which they have the lowest opportunity cost, allowing for more efficient allocation of resources.

Question 3

The law of comparative advantage explains why
A) specialization and exchange will make it possible for trading partners to expand their combined output.
B) there will be an inverse relationship between the price of a product and the quantity of it that will be demanded.
C) larger firms will have lower per unit costs than smaller firms.
D) an increase in the price of a good will lead to an expansion in the quantity supplied by business firms.

Accepted Answer

The law of comparative advantage states that if countries specialize in producing goods where they have a lower opportunity cost, they can trade to mutual benefit, thus expanding their combined output.

Question 4

The notion that specialization in goods that one can produce at a low opportunity cost will make it possible for trading partners to produce a larger joint output is called
A) the law of absolute advantage.
B) the law of comparative advantage.
C) the law of production possibilities.
D) the exchange maximum principle.

Accepted Answer

The law of comparative advantage states that countries or individuals should specialize in producing goods for which they have a lower opportunity cost, leading to increased overall efficiency and joint output in trade.

Question 5

Michael takes 10 minutes to iron a shirt and 20 minutes to type a paper. Aiden takes 10 minutes to iron a shirt and 30 minutes to type a paper. Which of the following statements is correct?
A) Aiden has a comparative advantage in ironing.
B) Aiden has a comparative advantage in typing.
C) Michael has a comparative advantage in ironing.
D) Neither can gain from specialization and exchange.

Accepted Answer

The answer of Michael takes 10 minutes to iron a...

Question 6

Opportunity costs differ among nations primarily because
A) nations employ different currencies.
B) nations have different amounts of land, labor skills, capital, and technology.
C) nations have different religious, political, and economic institutions.
D) the work-leisure preferences of people vary considerably from one nation to another.

Accepted Answer

Opportunity costs differ among nations primarily due to the varying amounts of resources such as land, labor skills, capital, and technology that each nation possesses, which affects their production capabilities and economic decisions.

Question 7

Ashley is an attorney and also an excellent typist. She can type 120 words per minute, but she charges attorney fees at $100 per hour. Benjamin would like some typing work but can only type 60 words per minute. According to the law of comparative advantage, Ashley should hire Benjamin to do her typing if and only if his wage rate is less than
A) $10 per hour.
B) $50 per hour.
C) $60 per hour.
D) $100 per hour.

Accepted Answer

Ashley should hire Benjamin if his wage rate is less than the opportunity cost of her typing, which is $50 per hour (since she can type twice as fast as Benjamin, her opportunity cost is half of her attorney fee rate).

Question 8

The size of a country's "economic pie" is thought of as the total dollar value of all goods and services produced during some period of time. The economic pie
A) is a fixed total waiting to be divided up among people.
B) determines how much wealth an individual can obtain.
C) is variable, not fixed, across time periods.
D) depends solely upon the natural resources of a country.

Accepted Answer

The economic pie is variable because it can grow or shrink over time based on factors like productivity, innovation, and economic policies, rather than being a fixed amount.

Question 9

The law of comparative advantage implies that a nation, individual, or region should produce those economic goods for which it
A) has an absolute advantage.
B) is a low opportunity cost producer.
C) is a high opportunity cost producer.
D) pays the highest wage rate.

Accepted Answer

The law of comparative advantage suggests that entities should specialize in producing goods for which they have the lowest opportunity cost, allowing for more efficient allocation of resources and increased overall economic welfare.

Question 10

Given freedom of movement for both goods and resources, if Florida producers specialize in oranges and Georgia producers specialize in peaches, it would be reasonable to conclude that
A) the opportunity cost of growing oranges is higher in Florida than in Georgia.
B) Georgia has a comparative advantage in producing oranges.
C) Florida has a comparative advantage in producing oranges.
D) total output will be expanded when Georgia allocates more resources to producing oranges and Florida allocates more resources to producing peaches.

Accepted Answer

Florida specializing in oranges suggests it has a comparative advantage in producing them, meaning it can produce oranges at a lower opportunity cost than Georgia.

Question 11

Which of the following is an implication of the law of comparative advantage?
A) Countries with small amounts of labor relative to capital should specialize in producing labor-intensive commodities.
B) Since workers in high-income countries utilize larger amounts of capital than workers in less developed nations, trade between capital-rich and capital-poor nations results in the exploitation of labor in the less developed countries.
C) Countries that are high cost producers of agricultural products should trade those products for goods they can produce only at a low opportunity cost.
D) Countries that are low opportunity cost producers of timber products should trade those products for goods they can produce only at a high opportunity cost.

Accepted Answer

The law of comparative advantage suggests that countries should specialize in producing goods for which they have a lower opportunity cost and trade for goods that would be more costly for them to produce.

Question 12

Jayden can produce 10 pens or 20 pencils in one hour while Alexander can produce 15 pens or 5 pencils in one hour. Which of the following statements is correct?
A) Alexander has a comparative advantage over Jayden in the production of pencils
B) Alexander has a comparative advantage over Jayden in the production of pens
C) Jayden has a comparative advantage over Alexander in the production of pens
D) Alexander and Jayden cannot gain from specialization and exchange.

Accepted Answer

Alexander has a lower opportunity cost for producing pens (1/3 pencil per pen) compared to Jayden (2 pencils per pen), giving him a comparative advantage in pen production.

Question 13

The economic principle that states that individuals or nations can gain by specializing in the production of goods that they produce cheaply and exchanging for other desired goods that they could only produce at a higher cost is
A) the law of absolute advantage.
B) the law of comparative advantage.
C) the law of production possibilities.
D) the exchange maximum principle.

Accepted Answer

The law of comparative advantage states that individuals or nations can gain by specializing in the production of goods that they produce cheaply and exchanging for other desired goods that they could only produce at a higher cost.

Question 14

In a market economy,
A) a larger income for one person means a smaller one for another.
B) the government answers all the basic economic questions.
C) a larger income for one person means it is possible for others to earn more too.
D) economic output shrinks as we discover better ways of doing things.

Accepted Answer

In a market economy, income is not fixed; it can grow as the economy grows. A larger income for one person can result from increased productivity or innovation, which can also create opportunities for others to earn more.

Question 15

A form of economic organization that relies primarily on private ownership of productive assets, freedom of exchange, and market prices to allocate goods and resources is often called
A) national socialism.
B) the welfare state.
C) a corporate economy.
D) capitalism.

Accepted Answer

Capitalism is characterized by private ownership, market-based allocation, and voluntary exchange.

Question 16

Which of the following is true of exchange?
A) Exchange is a zero sum activity; if one party to an exchange gains, the other must lose an equal amount.
B) The exchange value of a good is determined by the cost of the resources required to produce the good.
C) The total output trading partners are able to produce is not influenced by whether the partners trade with each other.
D) Exchange permits trading partners to expand their total output of goods and services as the result of greater specialization in areas where each has a comparative advantage.

Accepted Answer

Exchange allows trading partners to specialize in areas where they have a comparative advantage, leading to an increase in total output of goods and services.

Question 17

The law of comparative advantage suggests that
A) curtailing U.S. trade with other countries would make U.S. consumers better off.
B) everyone would be better off if they were self-sufficient.
C) countries will tend to import commodities that they can produce at a relatively low opportunity cost.
D) countries will tend to import commodities that they can produce at a relatively high opportunity cost.

Accepted Answer

The law of comparative advantage suggests that countries should specialize in producing goods for which they have a lower opportunity cost and import goods for which they have a higher opportunity cost.

Question 18

A system of economic organization in which the ownership and control of productive capital assets rests with the state and in which resources are allocated through central planning and political decision making is called
A) socialism.
B) a market economy.
C) a corporate economy.
D) capitalism.

Accepted Answer

Socialism is an economic system where the state owns and controls the means of production and resources are allocated through central planning.

Question 19

The law of comparative advantage applies to exchange between
A) individuals.
B) regions.
C) nations.
D) all of the above.

Accepted Answer

The law of comparative advantage applies to all levels of exchange, whether between individuals, regions, or nations, as it suggests that parties can benefit from trade by specializing in the production of goods for which they have a lower opportunity cost.

Question 20

According to the law of comparative advantage,
A) individuals and nations gain when they specialize in producing those goods they consume.
B) individuals and nations gain when they specialize in producing goods they can produce at a high opportunity cost and can exchange for other desired goods they can produce cheaply.
C) individuals and nations gain when they specialize in producing those items for which they are the low opportunity cost producers and exchange for other desired goods they can't produce as cheaply.
D) all of the above are true.

Accepted Answer

The law of comparative advantage states that individuals and nations benefit by specializing in the production of goods for which they have a lower opportunity cost and trading for goods that would be more costly for them to produce.

Quiz 2: Some Tools of the Economist

Which of the following appropriately applies the law of comparative advantage?

According to the law of comparative advantage, both individuals and nations will be able to produce a larger joint output if each productive activity is undertaken by

The law of comparative advantage explains why

The notion that specialization in goods that one can produce at a low opportunity cost will make it possible for trading partners to produce a larger joint output is called

Michael takes 10 minutes to iron a shirt and 20 minutes to type a paper. Aiden takes 10 minutes to iron a shirt and 30 minutes to type a paper. Which of the following statements is correct?

Opportunity costs differ among nations primarily because

The size of a country's "economic pie" is thought of as the total dollar value of all goods and services produced during some period of time. The economic pie

The law of comparative advantage implies that a nation, individual, or region should produce those economic goods for which it

Given freedom of movement for both goods and resources, if Florida producers specialize in oranges and Georgia producers specialize in peaches, it would be reasonable to conclude that

Which of the following is an implication of the law of comparative advantage?

Jayden can produce 10 pens or 20 pencils in one hour while Alexander can produce 15 pens or 5 pencils in one hour. Which of the following statements is correct?

The economic principle that states that individuals or nations can gain by specializing in the production of goods that they produce cheaply and exchanging for other desired goods that they could only produce at a higher cost is

In a market economy,

A form of economic organization that relies primarily on private ownership of productive assets, freedom of exchange, and market prices to allocate goods and resources is often called

Which of the following is true of exchange?

The law of comparative advantage suggests that

A system of economic organization in which the ownership and control of productive capital assets rests with the state and in which resources are allocated through central planning and political decision making is called

The law of comparative advantage applies to exchange between

According to the law of comparative advantage,