Question 1

Why do people often choose to specialize and trade?
A) It allows them to enjoy more goods than they can create on their own.
B) They can consume a bundle of goods on their production possibilities frontier.
C) It allows them to always produce at a point beyond their own production possibilities frontier.
D) They can take advantage of another nation's poor choices.

Accepted Answer

Specialization and trade allow individuals to enjoy a greater variety of goods than they would be able to produce on their own. By focusing on producing goods in which they have a comparative advantage, individuals can exchange those goods for other goods that they are less efficient at producing. This leads to a mutually beneficial outcome for both parties involved in the trade.

Question 2

If France is capable of producing cheese, wine, or some combination of those two, it should:
A) produce the good it is more efficient at producing.
B) produce the good for which it has a comparative advantage.
C) produce the good for which it has a higher opportunity cost.
D) remain self-sufficient, as long as it has an absolute advantage at producing both goods.

Accepted Answer

France should produce the good for which it has a comparative advantage. This means that France should produce the good that it can produce at a lower opportunity cost compared to other countries. For example, if France can produce wine at a lower opportunity cost than cheese, it should specialize in producing wine and trade with other countries to obtain cheese. This will lead to a more efficient allocation of resources and higher overall production.

Question 3

Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. After examining the production possibilities of each country, what can we surmise about the opportunity cost of a car for Country A?
A) It is lower than that of Country B; Country A should specialize in cars and trade with Country B for trucks.
B) It is higher than that of Country B; Country A should specialize in cars and trade with Country B for trucks.
C) It is the same as that of Country B; Country A will not benefit from trade and should refrain.
D) It should have no effect on Country A's decision to trade; absolute advantage drives that decision.

Accepted Answer

The answer of  Refer to the figure shown, which...

Question 4

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. Country B will benefit from trade if the country specializes in _____ because _____
A) bananas; it has a comparative advantage at producing bananas.
B) tomatoes; its opportunity cost of tomatoes is higher than that of Country A.
C) tomatoes; its opportunity cost of tomatoes is lower than that of Country A.
D) bananas; it has an absolute advantage at producing bananas.

Accepted Answer

For Country A, the opportunity cost of one banana is 1/5 tomato (because they can produce either 25 bananas or 5 tomatoes per year). For Country B, the opportunity cost of one banana is 1/3 tomato (because they can produce either 18 bananas or 6 tomatoes per year). Therefore, Country B has a comparative advantage in producing tomatoes, as its opportunity cost of producing tomatoes is lower than that of Country A. This means that Country B can produce tomatoes at a lower opportunity cost than bananas compared to Country A. Specializing in tomatoes and trading with Country A for bananas will allow both countries to benefit.

Question 5

Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. Which of the following statements is true regarding Country A's opportunity cost of a t-shirt?
A) It is lower than that of Country B, so Country A should specialize in t-shirts and trade for avocados.
B) It is higher than that of Country B, so Country A should specialize in avocados and trade for t-shirts.
C) It is higher than that of Country B for both goods, so Country A will not benefit from trade.
D) It is lower than that of Country B for both goods, so Country A will not benefit from trade.

Accepted Answer

According to the figure, Country A's PPF is steeper than Country B's PPF, indicating that Country A has a higher opportunity cost of producing t-shirts than B. Therefore, Country A should specialize in producing avocados, which it has a comparative advantage in, and trade with Country B for t-shirts, which B has a comparative advantage in producing. This will allow both countries to benefit and increase their overall output.

Question 6

Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. Considering the production possibilities frontiers of both countries, we can conclude that Country B will specialize in _____ and be willing to _____ three cars for each truck.
A) trucks; accept no fewer than
B) cars; give no more than
C) trucks; accept no more than
D) cars; give no fewer than

Accepted Answer

The answer of  Refer to the figure shown, which...

Question 7

People will choose to specialize and trade if they can acquire the goods they want:
A) at a lower cost than making the goods themselves.
B) at a higher cost than making the goods themselves.
C) from someone who is willing to trade with them.
D) from a capitalistic system of exchange.

Accepted Answer

People will choose to specialize and trade only if they can acquire the goods at a lower cost than making the goods themselves. This helps in achieving a higher level of efficiency and production.

Question 8

If Spain is capable of producing tapas, soccer balls, or some combination of those two, then it should:
A) produce the good it has an absolute advantage at producing.
B) produce the good it has a comparative advantage at producing.
C) remain self-sufficient, as long as it can produce both efficiently.
D) trade only if it has an absolute advantage at producing both goods.

Accepted Answer

Spain should produce the good it has a comparative advantage at producing. This means it should produce the good it can produce at a lower opportunity cost than its trading partners. In this case, it will depend on the opportunity cost of producing tapas versus soccer balls. If the opportunity cost of producing tapas is lower than that of producing soccer balls, then Spain should specialize in producing tapas and trade with other countries for soccer balls. If the opportunity cost of producing soccer balls is lower than that of producing tapas, then Spain should specialize in producing soccer balls and trade with other countries for tapas.

Question 9

Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. After comparing each country's production possibilities frontier, it is clear that:
A) Country A should specialize in cars, Country B should specialize in trucks, and both could benefit from trade.
B) Country A should specialize in trucks, Country B should specialize in cars, and both will benefit from trade.
C) Country A will not benefit from trade.
D) Country B will lose by trading with Country A.

Accepted Answer

The answer of  Refer to the figure shown, which...

Question 10

Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. Considering the production possibilities frontiers of both countries, we know that both would be willing to agree to which terms of trade?
A) One truck for two cars
B) One truck for four cars
C) One truck for six cars
D) One truck for eight cars

Accepted Answer

The answer of  Refer to the figure shown, which...

Question 11

Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. After examining each country's production possibilities frontier, it is clear that:
A) neither country will benefit from trade.
B) both countries can benefit from trade because an absolute advantage exists.
C) both countries could benefit from trade because a comparative advantage exists.
D) only Country A will benefit from trade.

Accepted Answer

Both countries can benefit from trade because a comparative advantage exists. This is because each country has a different opportunity cost for producing each good. For example, Country A has a lower opportunity cost for producing wheat, while Country B has a lower opportunity cost for producing cars. By specializing in the production of the good with the lower opportunity cost, each country can produce more goods overall and trade with the other country for the good that they have a higher opportunity cost for producing. This will allow both countries to consume more of both goods than they would be able to produce on their own.

Question 12

Two countries will choose to specialize and trade only if:
A) the terms of trade fall between the two nations' opportunity costs for producing the goods on their own.
B) the opportunity costs are the same for the two nations.
C) the opportunity costs for producing the goods on their own are astronomically high.
D) one country has an absolute advantage at producing both goods, but a comparative advantage at producing only one good.

Accepted Answer

Countries will specialize and trade if the terms of trade fall between the two nations' opportunity costs for producing the goods on their own. This means that both countries can benefit from trade by producing the good they have a comparative advantage in and trading it for the good the other country has a comparative advantage in, as long as the terms of trade are mutually beneficial.

Question 13

A country's newest ruler has decided the country will become self-sufficient and ceases trade with the rest of the world. How will this most likely affect the country's citizens?
A) They will be forced to consume less of the goods the country had a comparative advantage at producing.
B) They will be better off than before as long as the country has an absolute advantage at producing any good.
C) They will be better off than before only if the country has an absolute advantage at producing most of the goods they consume.
D) They will be better off than before only if they have a comparative advantage at producing all goods.

Accepted Answer

Ceasing trade with the rest of the world means the country's citizens will no longer have access to goods and services produced more efficiently by other countries, which they previously consumed. Thus, they will be forced to consume less of the goods the country had a comparative advantage at producing.

Question 14

When a country loses its comparative advantage at producing a good it will:
A) stop trading and become self-sufficient.
B) gain a comparative advantage at producing another good.
C) become a loser in trade in the long run.
D) still have an absolute advantage at producing the good.

Accepted Answer

When a country loses its comparative advantage at producing a good, it means that other countries can produce that good more efficiently. However, the country can still gain a comparative advantage at producing another good. By specializing in the production of the good in which it has a comparative advantage, the country can still benefit from trade and increase its overall welfare.

Question 15

Economic theory states that losing a comparative advantage at producing one good means creating a comparative advantage at producing another. As an economy transitions from producing one good to producing another good:
A) those who must transition from the production of one good to the production of another good may find the transition difficult in the short run.
B) the transition can be seen as a success in the short run.
C) outsourcing will always be good for every member of a society.
D) no one will complain in the short run, but in the long run people may not like the transition.

Accepted Answer

Economic theory states that losing a comparative advantage at producing one good means creating a comparative advantage at producing another. However, the transition from producing one good to producing another may be difficult in the short run for those who must transition. Therefore, option A is the correct choice. Option B, outsourcing will not always be good for every member of society, so option C is incorrect. Option D is also incorrect as people may complain in the short run as well as the long run.

Question 16

Suppose that a worker in Country A can make either 10 iPhones or 5 iPads each year. Country A has 100 workers. Suppose a worker in Country B can make either 2 iPhones or 10 iPads each year. Country B has 200 workers. Country B has a(n) _____ advantage at producing iPads, which means it should specialize in _____.
A) comparative; iPads
B) absolute; iPads
C) comparative; iPhones
D) absolute; iPhones

Accepted Answer

Country B has a comparative advantage at producing iPads, meaning they have a lower opportunity cost in producing iPads compared to Country A. Therefore, Country B should specialize in producing iPads while Country A should specialize in producing iPhones.

Question 17

Suppose the figure shown represents the production possibilities frontier for Country A. Country B offers to trade four trucks for every airplane. Assuming Country A specializes in airplane production, which of the following combinations of goods could Country A consume?
A) (15 airplanes, 20 trucks)
B) (10 airplanes, 20 trucks)
C) (10 airplanes, 30 trucks)
D) (5 airplanes, 20 trucks)

Accepted Answer

The answer of  Suppose the figure shown represents the...

Question 18

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. The opportunity cost of building one table is _____ for Tom and _____ for Jerry. Therefore, Tom should specialize in _____.
A) 4 chairs; 2 chairs; chairs
B) 16 chairs; 14 chairs; chairs
C) 4 chairs; 2 chairs; tables
D) 16 chairs; 14 chairs; tables

Accepted Answer

The opportunity cost of building one table is the number of chairs that could have been produced instead. 
For Tom, the opportunity cost of building one table is 16/4=4 chairs, which means that for every table he builds, he is sacrificing the production of 4 chairs. 
For Jerry, the opportunity cost of building one table is 14/7=2 chairs. 
Therefore, Tom should specialize in building tables since his opportunity cost of building one table is lower than Jerry's.

Question 19

Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. Considering the production possibilities frontiers of both countries, we can infer that Country A should specialize in producing _____ and be willing to _____ five cars for each truck.
A) trucks; accept no less than
B) cars; give no more than
C) trucks; accept no more than
D) cars; give no less than

Accepted Answer

The answer of  Refer to the figure shown, which...

Question 20

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 workers in Country A should specialize in producing _____ because it has a(n) _____ at producing that good.
A) bananas; comparative advantage
B) tomatoes; comparative advantage
C) bananas; absolute advantage
D) tomatoes; absolute advantage

Accepted Answer

To determine which country should specialize in which good, we need to look at comparative advantage. Comparative advantage is the ability to produce a good at a lower opportunity cost than another country. We can calculate opportunity cost by looking at how much of one good a country must give up to produce one unit of another good.

For Country A: 
25 bananas/5 tomatoes = 5 bananas per tomato
So, to produce 1 tomato, Country A must give up the opportunity to produce 5 bananas. 
5 tomatoes/25 bananas = 0.2 tomatoes per banana
So, to produce 1 banana, Country A must give up the opportunity to produce 0.2 tomatoes.

For Country B: 
18 bananas/6 tomatoes = 3 bananas per tomato
So, to produce 1 tomato, Country B must give up the opportunity to produce 3 bananas. 
6 tomatoes/18 bananas = 0.33 tomatoes per banana
So, to produce 1 banana, Country B must give up the opportunity to produce 0.33 tomatoes.

Based on these calculations, we can see that Country A has a lower opportunity cost for producing bananas, while Country B has a lower opportunity cost for producing tomatoes. Therefore, Country A should specialize in producing bananas and Country B should specialize in producing tomatoes.

Quiz 2: Specializationand Exchange

Why do people often choose to specialize and trade?

If France is capable of producing cheese, wine, or some combination of those two, it should:

Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. After examining the production possibilities of each country, what can we surmise about the opportunity cost of a car for Country A?

Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. Which of the following statements is true regarding Country A's opportunity cost of a t-shirt?

Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. Considering the production possibilities frontiers of both countries, we can conclude that Country B will specialize in _ and be willing to _ three cars for each truck.

People will choose to specialize and trade if they can acquire the goods they want:

If Spain is capable of producing tapas, soccer balls, or some combination of those two, then it should:

Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. After comparing each country's production possibilities frontier, it is clear that:

Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. Considering the production possibilities frontiers of both countries, we know that both would be willing to agree to which terms of trade?

Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. After examining each country's production possibilities frontier, it is clear that:

Two countries will choose to specialize and trade only if:

A country's newest ruler has decided the country will become self-sufficient and ceases trade with the rest of the world. How will this most likely affect the country's citizens?

When a country loses its comparative advantage at producing a good it will:

Economic theory states that losing a comparative advantage at producing one good means creating a comparative advantage at producing another. As an economy transitions from producing one good to producing another good:

Suppose the figure shown represents the production possibilities frontier for Country A. Country B offers to trade four trucks for every airplane. Assuming Country A specializes in airplane production, which of the following combinations of goods could Country A consume?

Refer to the figure shown, which represents the production possibilities frontiers for Countries A and B. Considering the production possibilities frontiers of both countries, we can infer that Country A should specialize in producing _ and be willing to _ five cars for each truck.