Question 1

A nation-s production possibilities frontier is a graph of the various possible combinations of total feasible production rates for two items within that country.

Accepted Answer

This statement accurately describes a production possibilities frontier (PPF).

Question 2

The slope of a line tangent to a nation-s production possibilities frontier reflects the opportunity cost of producing more of the good on the vertical axis.

Accepted Answer

False

Question 3

In country A, the opportunity cost of producing 2,000 pounds of microprocessors is 4,000 tablet devices. In country B, the opportunity cost of 3,000 tablet devices is 4,000 pounds of microprocessors. Both countries can experience gains from trade if the exchange rate for a ton of cereal is 3 tablet devices per pound of microprocessors.

Accepted Answer

Country A has a comparative advantage in producing tablet devices as their opportunity cost of producing 2,000 pounds of microprocessors is only 4,000 tablet devices. 
On the other hand, Country B has a comparative advantage in producing microprocessors as their opportunity cost of producing 4,000 pounds of microprocessors is only 3,000 tablet devices. 
Hence, both countries can benefit from trade as Country A can export tablet devices and import microprocessors from Country B, and Country B can export microprocessors and import tablet devices from Country A. 
The given exchange rate of 3 tablet devices per pound of microprocessors also allows for mutually beneficial trade between the two countries.

Question 4

Absent any trade, a country's residents either can produce 1,000 laptop computers and 500 computer servers per week, or can produce 750 laptop computers and 750 computer servers per week. After trade takes place, its residents either can consume both 1,000 laptop computers and 600 computer servers, or can consume both 850 laptop computers and 750 computer servers. These outcomes represent:

Accepted Answer

The fact that residents can consume more of both goods after trade indicates an increase in total output, which represents gains from international trade. Both countries have a comparative advantage in one of the goods, and trade allows them to specialize in producing the good in which they have the comparative advantage and trade for the other good.

Question 5

If technology improves or the amounts of available resources increase, the:

Accepted Answer

The answer of If technology improves or the amounts of...

Question 6

The production possibilities frontier is __________ because, as more of a country's fixed resources are used to produce an item using the same technology, the opportunity cost of producing the item usually __________.

Accepted Answer

The production possibilities frontier is concave because as more resources are allocated to produce one good, the opportunity cost of producing additional units increases due to the law of increasing opportunity costs.

Question 7

If there is international trade, then a nation's consumption possibilities are __________ its production possibilities.

Accepted Answer

International trade allows a nation to acquire goods and services that it may not have the capacity to produce domestically. By importing goods and services that it does not produce, a nation's consumption possibilities are greater than its production possibilities.

Question 8

The points at which a country-s production possibilities frontier touches each of the coordinate axes measure:

Accepted Answer

The production possibilities frontier (PPF) shows the maximum quantities of goods that a country can produce using all of its resources efficiently. The points at which the PPF intersects with each of the two axes represent the maximum quantity of one good that can be produced if all resources are devoted to that good, while none are used for the other good. Therefore, the points touching the two axes represent the maximum quantities of each good that can be produced using all resources.

Question 9

Consider two nations, country A and country B, that produce goods X and Y. The production possibility frontiers for the two nations are graphed with units of good Y measured vertically and units of good X measured horizontally. At the two nation-s current points along their frontiers, the slope of a tangent line is steeper for country A than for country B. We can conclude that:

Accepted Answer

The steeper slope for country A's production possibility frontier (PPF) indicates that it has to give up more of good Y to produce an additional unit of good X compared to country B. This suggests that country B has a lower opportunity cost for producing good X, implying a comparative advantage in producing good X.

Question 10

A redistribution effect of international trade unambiguously involves:

Accepted Answer

A redistribution effect of international trade means that certain industries or groups of people may benefit while others may lose out. It involves a shift of income from people associated with certain industries to people associated with other industries. This is not equiproportionate expansion of consumption possibilities for all of a nation's residents as stated in choice B, nor does it imply that the nation has no comparative advantage as stated in choice C or that the nation experiences no absolute advantage as stated in choice D.

Question 11

Gains from trade occur for an individual nation when international trade results in:

Accepted Answer

The answer of Gains from trade occur for an individual...

Question 12

If one nation-s production possibilities frontier is always located inside another country-s production possibilities frontier, then the two nations may nevertheless experience gains from international trade.

Accepted Answer

The answer of If one nation-s production possibilities frontier is...

Question 13

Absolute advantage exists when residents of one country can produce a good or service at lower opportunity cost than residents of another country.

Accepted Answer

Absolute advantage exists when residents of one country can produce a good or service using fewer resources than residents of another country, not at a lower opportunity cost. Lower opportunity cost refers to comparative advantage.

Question 14

The value of each and every alternative value sacrificed in order to obtain an item is the item's opportunity cost.

Accepted Answer

The answer of The value of each and every alternative...

Question 15

The slope of a line tangent to a country's production possibilities frontier measures the opportunity cost its residents incur when they opt to produce an additional unit of a good or service.

Accepted Answer

The slope of the production possibilities frontier represents the opportunity cost of producing one good in terms of the other. When a country produces more of one good, it must give up some of the other good. The opportunity cost is the amount of the other good that must be given up to produce one additional unit of the first good. Therefore, the slope of the production possibilities frontier represents the opportunity cost of producing more of one good.

Question 16

The opportunity cost of producing an additional unit of an item typically decreases as the more units of that item are produced.

Accepted Answer

The opportunity cost of producing an additional unit of an item typically increases due to the law of increasing opportunity costs, which states that to produce more of one good, a larger amount of another good must be sacrificed, assuming that all resources are fully utilized.

Question 17

If the opportunity cost of producing an additional good is always the same to residents of a nation, no matter how many units they produce, the production possibilities frontier would be a convex curve.

Accepted Answer

The production possibilities frontier would actually be a straight line because the opportunity cost of producing an additional good remains constant. A convex curve would indicate increasing opportunity costs as more units of a good are produced.

Question 18

Without trade, the production possibilities frontier also depicts a nation-s consumption possibilities.

Accepted Answer

Without trade, a nation's production possibilities frontier shows the maximum combination of goods and services that can be produced and consumed domestically. Therefore, it also represents the nation's consumption possibilities.

Question 19

Absolute advantage is the term for a situation in which engaging in international trade redistributes more income from one industry to another than is the case in other countries.

Accepted Answer

Absolute advantage refers to a situation where one country can produce a good or service more efficiently than another country, not necessarily resulting in income redistribution.

Question 20

Absolute advantage is required for residents of nations to gain from international trade.

Accepted Answer

Comparative advantage, where a country specializes in producing goods with lower opportunity costs, is sufficient for residents of nations to gain from international trade. Absolute advantage, where a country can produce goods more efficiently than another country, is not necessary for trade to be mutually beneficial.

Quiz 2: Comparative Advantage: How Nations Can Gain From International Trade