Question 1

Both Canada and the U.S.can produce equally tasty strawberries.What determines which country will export strawberries?

Accepted Answer

The country with the lower opportunity cost of producing strawberries will have a comparative advantage and will export them.

Question 2

Which of the following would NOT occur if each person specializes in the good for which they have a comparative advantage?

Accepted Answer

Each person's production possibilities frontier may not necessarily shift outward if they specialize in the good for which they have a comparative advantage. The production possibilities frontier reflects the maximum possible combinations of two goods that can be produced with existing resources and technology. Specialization and trade may allow individuals to consume a higher quantity and variety of goods than they would be able to produce alone, but it does not necessarily mean that their production possibilities frontier will shift outward.

Question 3

Greece and Germany can both produce fish and cars.Greece has a comparative advantage in cars,but Germany has an absolute advantage in cars.What would Germany import from Greece?

Accepted Answer

Germany would import cars from Greece because Greece has a comparative advantage in producing them, meaning that they can produce them at a lower opportunity cost than Germany. Despite Germany having an absolute advantage in producing cars, it would still be more cost-effective for them to import cars from Greece rather than producing them domestically.

Question 4

What does comparative advantage reflect?

Accepted Answer

Comparative advantage reflects the relative opportunity cost, which is the value of the next best alternative forgone in order to pursue the chosen alternative. It shows that even if one country is more productive in every area, they should still specialize in the area where they have a lower opportunity cost compared to their trading partner. This results in both countries being able to produce at a lower overall cost and benefit from trade. Efficiency and terms of trade advantage are related but not the exact concept reflected by comparative advantage.

Question 5

What is the opportunity cost of an item?

Accepted Answer

Opportunity cost refers to the value of the next best alternative that is forgone as a result of making a decision. It is what you give up to get that item, not necessarily related to the time spent earning money or the dollar value of the item.

Question 6

Mike and Sandy are two woodworkers who both make tables and chairs.In one month,Mike can make 4 tables or 20 chairs,where Sandy can make 6 tables or 18 chairs.Who has an absolute advantage in which product?

Accepted Answer

Mike can make more chairs in a month than Sandy (20 vs. 18), so he has an absolute advantage in chairs. Sandy can make more tables in a month than Mike (6 vs. 4), so she has an absolute advantage in tables.

Question 7

Why does total output in an economy increase when each person specializes?

Accepted Answer

When each person specializes in producing the product for which they have a comparative advantage, they become more efficient at producing that product. This means they can produce more in less time, increasing the total output of the economy.

Question 8

Mike and Sandy are two woodworkers who both make tables and chairs.In one month,Mike can make 4 tables or 20 chairs,where Sandy can make 6 tables or 18 chairs.What is the opportunity cost of 1 table?

Accepted Answer

The opportunity cost of 1 table for Mike is 5 chairs (since he can make 20 chairs instead of 4 tables, so 20/4 = 5 chairs per table). For Sandy, the opportunity cost of 1 table is 3 chairs (since she can make 18 chairs instead of 6 tables, so 18/6 = 3 chairs per table).

Question 9

What is the term that means whatever must be given up to obtain an item?

Accepted Answer

Opportunity cost refers to the cost of giving up the next best alternative when making a decision. It is the value of what is foregone in order to pursue a certain action or decision, and it applies to both personal and business decisions. Options A, B, and D refer to different economic concepts and do not relate to the idea of opportunity cost.

Question 10

What happens when countries specialize according to their comparative advantage?

Accepted Answer

When countries specialize according to their comparative advantage, they produce goods that they are relatively more efficient at producing than other countries. This leads to a more efficient allocation of resources and ultimately an increase in world output of all goods. As each country focuses on producing the goods in which it has a comparative advantage, they are able to trade with other countries, leading to gains from trade and an overall increase in global economic welfare.

Question 11

What should a country do if it has a comparative advantage in a product?

Accepted Answer

If a country has a comparative advantage in a product, it means that it can produce that product at a lower opportunity cost than other countries. As a result, the country should focus on producing that product and then export it to other countries that are willing to pay a higher price for it. This will allow the country to earn more revenue and improve its trade performance.

Question 12

Mike and Sandy are two woodworkers who both make tables and chairs.In one month,Mike can make 4 tables or 20 chairs,where Sandy can make 6 tables or 18 chairs.Who has a comparative advantage in which product?

Accepted Answer

Mike has a comparative advantage in chairs because he gives up fewer tables per chair than Sandy does. Sandy has a comparative advantage in tables because she gives up fewer chairs per table than Mike does.

Question 13

Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars.What will happen if these two countries specialize and trade according to their comparative advantage?

Accepted Answer

The answer of Assume that Greece has a comparative advantage...

Question 14

Suppose a producer requires a smaller quantity of inputs to produce carrots than to produce onions.Is this information sufficient to determine in which good the producer has a comparative advantage?

Accepted Answer

Comparative advantage cannot be determined solely by the quantity of inputs required for one producer; it requires comparing the opportunity costs of producing goods between different producers. Information about how other producers use their resources is necessary to establish comparative advantage.

Question 15

How does trade benefit the two parties involved?

Accepted Answer

Trade benefits both parties involved, as they are exchanging goods or services that they value differently. However, the benefits may not always be equal as each party may value what they are receiving differently. For example, a buyer may be willing to pay a higher price for a good that they value greatly, while the seller may be willing to sell it for a lower price because they have a surplus. Ultimately, trade allows both parties to gain something they value and would not have been able to acquire otherwise.

Question 16

How is absolute advantage found?

Accepted Answer

Absolute advantage is found by comparing the productivity of one nation to that of another. It measures the efficiency of a nation in producing a good or service using the same amount of resources as another nation. It is not related to opportunity cost or calculating the dollar cost of production. Comparative advantage is concerned with opportunity cost and determining which country has a lower opportunity cost in producing a good or service.

Question 17

Mike and Sandy are two woodworkers who both make tables and chairs.In one month,Mike can make 4 tables or 20 chairs,where Sandy can make 6 tables or 18 chairs.What is the opportunity cost of 1 chair?

Accepted Answer

The opportunity cost of 1 chair for Mike is 1/5 table (since 4 tables = 20 chairs, 1 chair = 1/5 table). For Sandy, it is 1/3 table (since 6 tables = 18 chairs, 1 chair = 1/3 table).

Question 18

Which of the following does trade NOT allow for?

Accepted Answer

Trade does not allow for countries to gain political control over trading partners. Trade is a voluntary exchange of goods and services between countries, and it does not involve political control over trading partners.

Question 19

Suppose a producer can produce shoes with lower opportunity cost than boots.What else do we need to know if we want to determine this producer's comparative advantage?

Accepted Answer

In order to determine the producer's comparative advantage, we need to compare their opportunity cost with that of other producers. Just because they have a lower opportunity cost for producing shoes, it does not necessarily mean they have a comparative advantage overall. We need to compare their opportunity cost in producing boots as well as look at the opportunity cost of other producers in the market.

Question 20

Belarus has a comparative advantage in the production of linen and an absolute advantage in the production of beer,compared to Russia.If these two countries decide to trade,what would the pattern of trade be?

Accepted Answer

Belarus has a comparative advantage in the production of linen, meaning they can produce linen at a lower opportunity cost than Russia can. On the other hand, Belarus only has an absolute advantage in the production of beer, meaning they can produce more beer than Russia but not necessarily at a lower opportunity cost. Therefore, Belarus would specialize in the production of linen and export it to Russia while importing beer from Russia.

Quiz 3: Interdependence and the Gains from Trade