Question 1

Suppose that a worker in Country A can make either 15 cars or 5 computers each year. Country A has 1,000 workers. Suppose a worker in Country B can make either 4 cars or 20 computers each year. Country B has 600 workers. _____ has a comparative advantage at producing cars, and _____ has a comparative advantage at producing computers.
A) Country A; Country B
B) Country B; Country A
C) Country A; Country A
D) Country B; Country B

Accepted Answer

To determine which country has a comparative advantage at producing a good, we need to compare the opportunity cost of producing that good in each country. Country A can produce 1 car by giving up the production of 1/3 (5/15) of a computer. Country B can produce 1 car by giving up the production of 5 computers. Therefore, Country A has a lower opportunity cost of producing cars than Country B, which means Country A has a comparative advantage at producing cars. Similarly, Country A can produce 1 computer by giving up the production of 3 cars, while Country B can produce 1 computer by giving up the production of 1/5 (4/20) of a car. Therefore, Country B has a lower opportunity cost of producing computers than Country A, which means Country B has a comparative advantage at producing computers.

Question 2

The improvement in outcomes that occurs when specialized producers exchange goods and services is called:
A) gains from trade.
B) absolute advantage.
C) comparative advantage.
D) specialization.

Accepted Answer

Gains from trade refers to the increase in overall efficiency, productivity, and economic welfare that occurs when specialized producers exchange goods and services. Through specialization, each producer can focus on their comparative advantage and produce goods at a lower opportunity cost, while also benefiting from the goods produced by others with different comparative advantages. This results in a more efficient allocation of resources, which leads to overall higher economic welfare.

Question 3

Suppose an American worker can make 100 nets or catch 1000 fish per day. On the other hand, a Chilean worker can produce 40 nets or catch 400 fish per day. The United States has a(n) _____ advantage at producing nets, but does not have a(n) _____ advantage at producing fish.
A) absolute; comparative
B) comparative; absolute
C) absolute; absolute
D) comparative; comparative

Accepted Answer

The United States has an absolute advantage in both nets and fish production because an American worker can produce more of both goods in a day than a Chilean worker. However, the question specifically asks about nets and fish separately, not comparing the two goods directly for comparative advantage.

Question 4

The United States and Canada trade hockey skates and apple pie. If the United States has an absolute and a comparative advantage at producing apple pie, then:
A) Canada must have a comparative advantage at producing skates.
B) Canada must have an absolute advantage at producing skates.
C) Canada must have an absolute and a comparative advantage at producing skates.
D) the United States must also have a comparative advantage at producing skates.

Accepted Answer

If the United States has both an absolute and a comparative advantage in producing apple pie, it means they can produce apple pie more efficiently and at a lower opportunity cost than Canada. Therefore, for trade to be beneficial for both countries, Canada must have a comparative advantage in producing the other good, which is hockey skates. Comparative advantage drives trade because it allows each country to specialize in the production of goods for which they have the lowest opportunity cost, leading to more efficient global production and increased overall welfare. Absolute advantage is not necessary for beneficial trade; what matters is comparative advantage.

Question 5

Which of the following is a reason people might choose not to specialize?
A) Specialization can lead people to consume more than if they would if they were self-sufficient.
B) Specialization can lead people to consume beyond the production possibilities frontier.
C) Specialization allows people to acquire goods at a lower opportunity cost.
D) Production standards are harder to control if goods are imported from other countries.

Accepted Answer

Specialization often involves relying on goods produced in other countries or regions, which can make it harder to ensure that these goods meet certain production standards. This concern over quality control and standards is a reason some might choose not to specialize.

Question 6

Which of the following statements about absolute and comparative advantage is not true?
A) If a country has a comparative advantage at producing a good, it can have an absolute advantage at producing another good.
B) If a country has an absolute advantage at producing a good, it can also have a comparative advantage at producing that good.
C) A country may have an absolute advantage at producing all goods.
D) A country may have a comparative advantage at producing all goods.

Accepted Answer

A country cannot have a comparative advantage in producing all goods because comparative advantage is based on the relative efficiency of producing one good over another. If a country has a comparative advantage in one good, it must have a relative disadvantage in another, as comparative advantage is about comparing the opportunity costs between goods.

Question 7

Suppose an American worker can make 100 nets or catch 900 fish per day. On the other hand, a Chilean worker, can make 40 nets or catch 400 fish per day. The United States has an absolute advantage at producing both fish and nets. This means that the United States:
A) should produce only nets and trade with Chile to get fish.
B) should produce only fish and trade with Chile to get nets.
C) should take advantage of Chile by trading with them.
D) same amount of workers" to read "same number of workers.

Accepted Answer

The answer of Suppose an American worker can make 100...

Question 8

Suppose that a worker in Country A can produce either 25 bananas or 5 tomatoes each year. Suppose that a worker in Country B can produce either 18 bananas or 6 tomatoes each year. Country B has an absolute advantage at:
A) producing bananas, but not tomatoes.
B) producing bananas and tomatoes.
C) producing tomatoes, but not bananas.
D) producing neither good.

Accepted Answer

Country B has an absolute advantage in producing tomatoes because a worker can produce 6 tomatoes each year, which is more than the 5 tomatoes a worker in Country A can produce. However, Country A has an absolute advantage in producing bananas, as a worker there can produce 25 bananas, more than the 18 bananas a worker in Country B can produce.

Question 9

When a producer has a comparative advantage at producing a good, it means the producer:
A) can produce more of that good than others with the same number of workers.
B) has the ability to produce the good at a lower opportunity cost than others.
C) has no reason to trade with others.
D) is efficient in production.

Accepted Answer

Comparative advantage refers to the ability to produce a good or service at a lower opportunity cost than others. This means that the producer can produce the good or service with fewer resources, allowing them to produce more goods overall or to specialize in producing that particular good or service. It does not necessarily mean that the producer is more efficient in production or has no reason to trade with others.

Question 10

Tom and Jerry have one day to work, but two tasks to focus on: building chairs and tables. If Tom spends all day building chairs, he will make 16 chairs. If he instead devotes his day to building tables, Tom will make 4 tables. If Jerry spends his day building chairs, he will make 14 chairs; if he spends the day building tables, he will make 7 tables. Jerry has a comparative advantage at producing _____ because he has a _____ opportunity cost of making that good.
A) chairs; lower
B) chairs; higher
C) tables; lower
D) tables; higher

Accepted Answer

Jerry has a comparative advantage in producing tables because he has a lower opportunity cost of making that good. To find the opportunity cost, we compare the ratio of chairs to tables for both Tom and Jerry. Tom can make 16 chairs or 4 tables in a day, meaning for Tom, the opportunity cost of making one table is 4 chairs (16 chairs / 4 tables). Jerry can make 14 chairs or 7 tables, meaning for Jerry, the opportunity cost of making one table is 2 chairs (14 chairs / 7 tables). Since Jerry gives up fewer chairs to make a table compared to Tom, Jerry has a comparative advantage in making tables due to a lower opportunity cost.

Question 11

Suppose that a worker in Country A can produce either 25 bananas or 5 tomatoes each year. Country A has 200 workers. Suppose a worker in Country B can produce either 18 bananas or 6 tomatoes each year. Country B has 400 workers. The opportunity cost of one tomato is:
A) lower in Country A than Country B.
B) higher in Country A than Country B.
C) the same in both countries.
D) impossible to calculate without more information.

Accepted Answer

To calculate the opportunity cost of one tomato, we need to look at how many bananas one tomato is worth in each country.

In Country A, one tomato is worth 5 bananas (since a worker can produce either 25 bananas or 5 tomatoes).

In Country B, one tomato is worth 3 bananas (since a worker can produce either 18 bananas or 6 tomatoes).

Therefore, the opportunity cost of one tomato is higher in Country A than Country B, since giving up the production of one tomato means giving up the production of 5 bananas in Country A, but only giving up 3 bananas in Country B.

Question 12

Tom and Jerry have one day to work, but two tasks to focus on: building chairs and tables. If Tom spends all day building chairs, he will make 16 chairs. If he instead devotes his day to building tables, Tom will make 4 tables. If Jerry spends his day building chairs, he will make 14 chairs; if he spends the day building tables, he will make 7 tables. Because Tom has a _____ opportunity cost for one table compared to Jerry, we know Tom has _____.
A) higher; a comparative advantage at producing tables
B) lower; a comparative advantage at producing tables
C) similar; no advantage at producing either good
D) higher; a comparative advantage at producing chairs

Accepted Answer

The answer of Tom and Jerry have one day to...

Question 13

When a producer has the ability to produce a good or service at a lower opportunity cost than others, economists say the producer:
A) has an absolute advantage at producing that good.
B) has a comparative advantage at producing that good.
C) has no reason to trade with others.
D) is efficient in production.

Accepted Answer

When a producer has a lower opportunity cost of producing a good or service, this means they have a comparative advantage. This means that even if they can produce all goods at a lower cost than others (absolute advantage), they should still specialize in producing the good they have the lowest opportunity cost for and trade with others in order to maximize overall output and efficiency. Therefore, choice B is the correct answer. Choices A, C, and D are incorrect because they do not fully explain the concept of comparative advantage.

Question 14

When a producer has an absolute advantage at producing a good, it means the producer:
A) can produce more of that good than others with the same amount of resources.
B) has the ability to produce a good or service at a lower opportunity cost than others.
C) has no reason to trade with others.
D) is less efficient than other producers.

Accepted Answer

Absolute advantage refers to the ability of a producer to produce a greater quantity of a good or service than competitors using the same amount of resources.

Question 15

Tom and Jerry have one day to work, but two tasks to focus on: building chairs and tables. If Tom spends all day building chairs, he will make 16 chairs. If he instead devotes his day to building tables, Tom will make 4 tables. If Jerry spends his day building chairs, he will make 14 chairs; if he spends the day building tables, he will make 7 tables. After looking at the production possibilities for both Tom and Jerry, what can we conclude?
A) Tom has a comparative advantage at producing chairs.
B) Jerry has a comparative advantage at producing chairs.
C) Tom has a comparative advantage at producing tables.
D) Neither Tom nor Jerry has a comparative advantage at producing either good.

Accepted Answer

Tom can produce 16 chairs in a day, while Jerry can only produce 14 chairs in a day. This means that Tom has a comparative advantage at producing chairs. Without information about the production possibilities for tables, we cannot determine if Tom or Jerry has a comparative advantage at producing tables.

Question 16

Suppose England has a comparative advantage over the United States at producing tea. If this is true, then:
A) England should produce more tea than it wants and sell the rest to the United States.
B) England should produce a small amount of tea and buy the rest of the tea it wants from the United States.
C) England should buy all of the tea it wants from the United States.
D) the United States has nothing to gain from buying tea produced by England.

Accepted Answer

According to the principle of comparative advantage, England should specialize in producing tea because it can produce it at a lower opportunity cost than the United States. Therefore, England should produce more tea than it wants and sell the rest to the United States, which can produce other goods and services more efficiently. Both countries will benefit from trade in this scenario.

Question 17

Tom and Jerry have one day to work, but two tasks to focus on: building chairs and tables. If Tom spends all day building chairs, he will make 16 chairs. If he instead devotes his day to building tables, Tom will make 4 tables. If Jerry spends his day building chairs, he will make 14 chairs; if he spends the day building tables, he will make 7 tables. After looking at the production possibilities for both Tom and Jerry, what can we surmise?
A) Tom has an absolute advantage at producing both chairs and tables.
B) Jerry has an absolute advantage at producing both chairs and tables.
C) Tom has an absolute advantage at producing chairs and Jerry has an absolute advantage at producing tables.
D) Tom has an absolute advantage at producing tables and Jerry has an absolute advantage at producing chairs.

Accepted Answer

Tom has an absolute advantage in producing chairs because he can make more chairs in a day than Jerry. Jerry has an absolute advantage in producing tables because he can make more tables in a day than Tom. Therefore, Tom has an absolute advantage in producing chairs and Jerry has an absolute advantage in producing tables.

Question 18

Suppose that a worker in Country A can make either 30 cars or 15 computers each year. Country A has 1,000 workers. Suppose a worker in Country B can make either 60 cars or 20 computers each year. Country B has 600 workers. _____ has the comparative advantage at producing cars, and _____ has a comparative advantage at producing computers.
A) Country A; Country B
B) Country B; Country A
C) Country A; Country A
D) Country B; Country B

Accepted Answer

The answer of Suppose that a worker in Country A...

Question 19

When two countries specialize and trade with one another, total production:
A) remains unchanged, but consumption rises.
B) increases, but only if a comparative advantage exists.
C) may increase, depending on trade relations.
D) remains unchanged, as does consumption.

Accepted Answer

When two countries specialize in producing goods they have a comparative advantage in, they can produce more efficiently and increase total production. This leads to increased trade and consumption, as the countries can produce more than they would have otherwise. However, this assumes that there is a comparative advantage and that trade is happening freely and fairly between the two countries. If either of these conditions are not met, total production may not increase.

Question 20

A country completely specializes in production when it spends all of its resources producing
A) a particular good.
B) the goods it has an absolute advantage at producing.
C) only what other countries need.
D) the goods it can make more of.

Accepted Answer

Specialization occurs when a country focuses on producing a particular good or a set of goods in which it has a comparative advantage. By specializing, a country can increase its efficiency and productivity, leading to higher levels of output and greater economic growth. Therefore, A is the best answer as a country that completely specializes in production spends all of its resources producing a particular good.

Quiz 2: Specializationand Exchange

The improvement in outcomes that occurs when specialized producers exchange goods and services is called:

Suppose an American worker can make 100 nets or catch 1000 fish per day. On the other hand, a Chilean worker can produce 40 nets or catch 400 fish per day. The United States has a(n) _ advantage at producing nets, but does not have a(n) _ advantage at producing fish.

The United States and Canada trade hockey skates and apple pie. If the United States has an absolute and a comparative advantage at producing apple pie, then:

Which of the following is a reason people might choose not to specialize?

Which of the following statements about absolute and comparative advantage is not true?

Suppose an American worker can make 100 nets or catch 900 fish per day. On the other hand, a Chilean worker, can make 40 nets or catch 400 fish per day. The United States has an absolute advantage at producing both fish and nets. This means that the United States:

Suppose that a worker in Country A can produce either 25 bananas or 5 tomatoes each year. Suppose that a worker in Country B can produce either 18 bananas or 6 tomatoes each year. Country B has an absolute advantage at:

When a producer has a comparative advantage at producing a good, it means the producer:

Suppose that a worker in Country A can produce either 25 bananas or 5 tomatoes each year. Country A has 200 workers. Suppose a worker in Country B can produce either 18 bananas or 6 tomatoes each year. Country B has 400 workers. The opportunity cost of one tomato is:

When a producer has the ability to produce a good or service at a lower opportunity cost than others, economists say the producer:

When a producer has an absolute advantage at producing a good, it means the producer:

Suppose England has a comparative advantage over the United States at producing tea. If this is true, then:

When two countries specialize and trade with one another, total production:

A country completely specializes in production when it spends all of its resources producing