Question 1

Which of the following would NOT occur if each person specializes in the good for which they have a comparative advantage?
A) Each person's production possibilities frontier will shift outward.
B) Total production in the economy will increase.
C) Everyone can be better off with specialization and trade.
D) The size of the economic pie will increase.

Accepted Answer

Specialization in the good for which one has a comparative advantage does not necessarily imply an increase in productivity for each individual. It means that each individual is producing the same amount of goods they were producing before but are now specializing in the good for which they have a comparative advantage. Hence, the individual's production possibilities frontier will not necessarily shift outward.

Question 2

Why does total output in an economy increase when each person specializes?
A) because there is much less competition for the same resources
B) because each person spends more time producing that product for which they have a comparative advantage
C) because a wider variety of products can be produced with specialization
D) because more people will be producing products than before

Accepted Answer

When each person specializes, they can focus on producing the goods and services that they are relatively more efficient at producing. This means they can produce more of those goods and services in a given period of time than if they tried to produce everything themselves. This increased productivity leads to higher total output in the economy.

Question 3

What does comparative advantage reflect?
A) productivity
B) relative opportunity cost
C) equity
D) terms of trade advantage

Accepted Answer

Comparative advantage reflects the relative opportunity cost, which is the cost of producing one good in terms of the opportunity cost of producing another. It is not directly related to productivity, equity, or terms of trade advantage.

Question 4

Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 6 tables or 18 chairs, where Sandy can make 5 tables or 25 chairs. Who has an absolute advantage in which product?
A) Mike in chairs, Sandy in tables
B) both Mike and Sandy in tables
C) both Mike and Sandy in chairs
D) Mike in tables, Sandy in chairs

Accepted Answer

Mike has an absolute advantage in tables because he can make 6 tables in a month while Sandy can only make 5 tables in a month. Sandy has an absolute advantage in chairs because she can make 25 chairs in a month while Mike can only make 18 chairs in a month. Therefore, the best choice is D, with Mike having an absolute advantage in tables and Sandy having an absolute advantage in chairs.

Question 5

How is absolute advantage found?
A) by comparing opportunity costs
B) by calculating the dollar cost of production
C) by comparing the productivity of one nation to that of another
D) by first determining which country has a comparative advantage

Accepted Answer

Absolute advantage is found by comparing the productivity of one nation to that of another. It is the ability of a country to produce a good or service at a lower cost than another country. This calculation considers the total output of a particular product or service and does not take into account other factors such as resource availability or opportunity cost.

Question 6

How does trade benefit the two parties involved?
A) Trade benefits both parties, but not always equally.
B) Trade benefits the seller more than the buyer.
C) Trade benefits the buyer more than the seller.
D) Trade benefits both parties equally.

Accepted Answer

Trade benefits both parties by allowing them to exchange goods or services that they may not have had access to otherwise. However, the benefits may not always be equal, as one party may have a greater advantage in terms of resources, technology, or bargaining power.

Question 7

What happens when countries specialize according to their comparative advantage?
A) It is possible to increase world output of all goods.
B) It is possible to increase world output of some goods only by reducing the output of others.
C) One country is likely to gain from trade while others lose.
D) All countries will lose from trade.

Accepted Answer

When countries specialize according to their comparative advantage, they are able to produce more efficiently and increase their level of productivity. This leads to an overall increase in world output of all goods. As countries focus on producing goods that they are relatively more efficient at producing, they are able to trade with each other and reap the benefits of specialization and trade. This results in higher levels of economic growth and prosperity for all countries involved.

Question 8

Suppose a producer can produce shirts with lower opportunity cost than jeans. What else do we need to know if we want to determine this producer's comparative advantage?
A) how this producer's opportunity cost compares with other producer's opportunity cost
B) nothing, the producer has a comparative advantage in jeans.
C) how many hours of work each product requires
D) nothing, the producer has a comparative advantage in shirts

Accepted Answer

To determine the producer's comparative advantage, we need to compare their opportunity cost of producing shirts and jeans with other producers in the market. Therefore, we need to know how this producer's opportunity cost compares with other producer's opportunity cost.

Question 9

Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 6 tables or 18 chairs, where Sandy can make 5 tables or 25 chairs. Who has a comparative advantage in which product?
A) Mike in chairs, Sandy in tables
B) both Mike and Sandy in tables
C) both Mike and Sandy in chairs
D) Mike in tables, Sandy in chairs

Accepted Answer

To determine comparative advantage, we need to compare the opportunity cost of producing one unit of one product between the two producers.

For Mike:
- Opportunity cost of producing 1 table = 3 chairs (he can make 18 chairs with the same resources used to make 6 tables)
- Opportunity cost of producing 1 chair = 1/3 table (he can make 6 tables with the same resources used to make 18 chairs)

For Sandy:
- Opportunity cost of producing 1 table = 5 chairs
- Opportunity cost of producing 1 chair = 1/5 table

From this, we can see that Mike has a lower opportunity cost (in terms of chairs foregone) for making tables compared to Sandy, while Sandy has a lower opportunity cost (in terms of tables foregone) for making chairs compared to Mike. Therefore, Mike has a comparative advantage in producing tables and Sandy has a comparative advantage in producing chairs.

Thus, the best choice is D, where Mike has a comparative advantage in tables and Sandy has a comparative advantage in chairs.

Question 10

What should a country do if it has a comparative advantage in a product?
A) It should import that product.
B) It should export that product.
C) It should keep the product for domestic use since it is relatively inexpensive to produce.
D) It should lower the costs of production until realizing an absolute advantage.

Accepted Answer

If a country has a comparative advantage in a product, this means that it can produce the product more efficiently and at a lower opportunity cost than other countries. Therefore, it is beneficial for the country to export that product and trade with other countries. By specializing in the production of the product they have a comparative advantage in and exporting it, the country can increase its overall output and economic growth.

Question 11

Spain and Germany can both produce fish and cars. Spain has a comparative advantage in cars, but Germany has an absolute advantage in cars. What would Germany import from Spain?
A) Nothing, because Germany has a comparative advantage in fish and an absolute advantage in cars.
B) Cars, because it is relatively cheaper for Spain to produce them.
C) Fish, because Germany can produce cars cheaper than Spain.
D) Both fish and cars, because Germany's absolute advantage in cars creates more income.

Accepted Answer

Even though Germany has an absolute advantage in producing cars, Spain has a comparative advantage in cars, meaning they can produce them at a lower opportunity cost compared to fish. Therefore, Germany would import cars from Spain because it is relatively cheaper for Spain to produce them.

Question 12

Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 6 tables or 18 chairs, where Sandy can make 5 tables or 25 chairs. What is the opportunity cost of 1 chair?
A) 1/5 table for Mike and 1/3 table for Sandy
B) 5 tables for Mike and 3 tables for Sandy
C) 1/3 table for Mike and 1/5 table for Sandy
D) 3 tables for Mike and 5 tables for Sandy

Accepted Answer

To find the opportunity cost of 1 chair, we need to calculate how much of a table each woodworker would have to give up in order to make 1 chair.

For Mike, he can make 6 tables or 18 chairs in one month. This means that for every 1 table he makes, he gives up the opportunity to make 3 chairs (18 chairs ÷ 6 tables = 3 chairs per table). Therefore, the opportunity cost of 1 chair for Mike is 1/3 of a table.

For Sandy, she can make 5 tables or 25 chairs in one month. This means that for every 1 table she makes, she gives up the opportunity to make 5 chairs (25 chairs ÷ 5 tables = 5 chairs per table). Therefore, the opportunity cost of 1 chair for Sandy is 1/5 of a table.

So, the total opportunity cost of 1 chair is (1/3 table for Mike) + (1/5 table for Sandy) = 8/15 table.

Therefore, the answer is C, 1/3 table for Mike and 1/5 table for Sandy.

Question 13

What is the term that means whatever must be given up to obtain an item?
A) efficiency
B) externality
C) opportunity cost
D) equilibrium

Accepted Answer

Opportunity cost is the term that means whatever must be given up to obtain an item.

Question 14

Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 6tables or 18 chairs, where Sandy can make 5 tables or 25 chairs. What is the opportunity cost of 1 table?
A) 1/5 chair for Mike and 1/3 chair for Sandy
B) 5 chairs for Mike and 3 chairs for Sandy
C) 1/3 chair for Mike and 1/5 chair for Sandy
D) 3 chairs for Mike and 5 chairs for Sandy

Accepted Answer

The answer of Mike and Sandy are two woodworkers who...

Question 15

Egypt 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?
A) Egypt would export linen to Russia.
B) Russia would export linen to Egypt.
C) Egypt would export both beer and linen to Russia.
D) Russia would export both beer and linen to Egypt.

Accepted Answer

Egypt has a comparative advantage in producing linen compared to Russia, while Russia has an absolute advantage in producing beer. Therefore, Egypt would export linen to Russia.

Question 16

Both Canada and the U.S. can produce equally tasty maple syrup. What determines which country will export maple syrup?
A) how the opportunity cost in Canada compares to the opportunity cost in the U.S.
B) how the costs of production in Canada compare to the costs of production in the U.S.
C) how the costs of labour in Canada compare to the costs of labour in the U.S.
D) how the costs of maple syrup in Canada compares to the cost of maple syrup in the U.S.

Accepted Answer

The country with the lower opportunity cost of producing maple syrup will specialize in its production and export it. Opportunity cost is the key concept in comparative advantage, which determines trade patterns.

Question 17

Assume that Spain 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?
A) All individuals in both countries will benefit.
B) Spain will specialize in and export cars.
C) Germany will produce more cars than fish in the absence of trade.
D) Germany will produce more fish than cars in the absence of trade.

Accepted Answer

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

Question 18

What is the opportunity cost of an item?
A) the number of hours needed to earn money to buy it
B) what you give up to get that item
C) always less than the dollar value of the item
D) always equal to the dollar value of the 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 19

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?
A) Yes, the producer has a comparative advantage in carrots.
B) Yes, the producer has a comparative advantage in onions.
C) No, because information about the costs of inputs is missing.
D) No, because information about other producers is missing.

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 20

Which of the following does trade NOT allow for?
A) a more efficient use of resources
B) goods to be obtained at a lower opportunity cost
C) people to specialize in activities in which they have a comparative advantage
D) all individuals within trading countries to benefit

Accepted Answer

While trade benefits countries as a whole by allowing for a more efficient use of resources, lower opportunity costs, and specialization, it does not necessarily benefit all individuals within trading countries equally. There may be winners and losers among certain groups, such as workers in industries that face foreign competition.

Quiz 3: Interdependence and the Gains From Trade

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

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

What does comparative advantage reflect?

Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 6 tables or 18 chairs, where Sandy can make 5 tables or 25 chairs. Who has an absolute advantage in which product?

How is absolute advantage found?

How does trade benefit the two parties involved?

What happens when countries specialize according to their comparative advantage?

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

Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 6 tables or 18 chairs, where Sandy can make 5 tables or 25 chairs. Who has a comparative advantage in which product?

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

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

Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 6 tables or 18 chairs, where Sandy can make 5 tables or 25 chairs. What is the opportunity cost of 1 chair?

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

Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 6tables or 18 chairs, where Sandy can make 5 tables or 25 chairs. What is the opportunity cost of 1 table?

Egypt 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?

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

Assume that Spain 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?

What is the opportunity cost of an item?

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?

Which of the following does trade NOT allow for?