Question 1

Specialisation and trade
A)shift the production possibilities frontier inward.
B)do not benefit anyone.
C)allow nations to consume combinations of products that are outside their individual production possibilities frontiers.
D)allow nations to produce inside their individual production possibilities frontiers.
E)shift the production possibilities frontier outward.

Accepted Answer

Specialization and trade allow nations to consume combinations of products that are outside their individual production possibilities frontiers. By specializing in the production of goods and services that they have a comparative advantage in, nations can trade for goods and services that they may not be able to produce as efficiently. This allows them to consume more goods and services than they could produce on their own, therefore expanding the range of consumption possibilities beyond their production possibilities frontier.

Question 2

Scott and Cindy both produce only pizza and tacos.In one hour,Scott can produce 20 pizzas or 40 tacos.In one hour,Cindy can produce 30 pizzas or 40 tacos.Cindy's opportunity cost of producing 1 taco is
A)1 1/3 tacos.
B)30 pizzas.
C)1 pizza.
D)40 pizzas.
E)3/4 of a pizza.

Accepted Answer

Cindy's opportunity cost of producing 1 taco is the amount of pizza she forgoes to produce 1 taco. Cindy can produce 30 pizzas or 40 tacos in one hour, so for each taco, she gives up 30/40 = 3/4 of a pizza.

Question 3

Scott and Cindy both produce only pizza and tacos.In one hour,Scott can produce 20 pizzas or 40 tacos.In one hour,Cindy can produce 30 pizzas or 40 tacos.Scott's opportunity cost of producing 1 taco is
A)2 pizzas.
B)2 tacos.
C)20 pizzas.
D)1 pizza.
E)1/2 of a pizza.

Accepted Answer

Scott's opportunity cost of producing 1 taco is the amount of pizzas he forgoes to produce 1 taco. Since Scott can produce 20 pizzas or 40 tacos in one hour, the opportunity cost of 1 taco is 20 pizzas / 40 tacos = 1/2 pizza.

Question 4

If workers in Mexico produce fewer goods and services per hour than workers in the United States in all areas of production,then
A)Mexico will benefit from trade with the United States but the United States will not.
B)both the United States and Mexico will benefit from trade with the other.
C)the United States will benefit from trade with Mexico but Mexico will not.
D)neither Mexico nor the United States will benefit from trade with the other.
E)it is unknown whether either country can benefit from trade with the other.

Accepted Answer

Even if workers in Mexico produce fewer goods and services per hour than workers in the United States in all areas of production, both countries can still benefit from trade with each other. Mexico can specialize in producing goods and services that have a lower opportunity cost for them, while the United States can specialize in producing goods and services that have a lower opportunity cost for them. In this way, both countries can increase their overall production and trade with each other to obtain the goods and services that they are not efficiently producing themselves.

Question 5

The gains from trade include i.lower prices from competition.
Ii)greater output from specialisation.
Iii)greater variety of goods and services available.
A)i and ii only
B)ii only
C)ii and iii only
D)i,ii and iii
E)i and iii only

Accepted Answer

The gains from trade are the benefits that countries, individuals, and firms experience when they engage in international trade. These gains include lower prices due to increased competition, greater output from specialization, and a greater variety of goods and services available. Therefore, the correct answer is D, as it includes all three gains from trade.

Question 6

In one hour John can produce 20 loaves of bread or 8 cakes.In one hour Phyllis can produce 30 loaves of bread or 15 cakes.Which of the following statements is true?
A)Phyllis has an absolute advantage in both goods.
B)Phyllis has a comparative advantage in producing both cakes and bread.
C)John has a comparative advantage in producing cakes.
D)John has an absolute advantage in both goods.
E)Phyllis has a comparative advantage in producing bread.

Accepted Answer

Phyllis can produce more of both goods in an hour than John, giving her an absolute advantage in both goods.

Question 7

If a nation has an absolute advantage in producing a good,then it
A)will not have a comparative advantage in producing that good.
B)will always specialise in that good.
C)will have no need to trade with other nations.
D)might or might not have a comparative advantage in producing that good.
E)will have a comparative advantage in producing that good.

Accepted Answer

Having an absolute advantage means the country can produce the good more efficiently than other countries. However, comparative advantage takes into account the opportunity cost of producing one good over another. It is possible that even though the country has an absolute advantage in producing a good, it may have a lower opportunity cost for producing another good, giving it a comparative advantage in that good. Therefore, having an absolute advantage does not guarantee a comparative advantage, and the country might or might not have a comparative advantage in producing that good.

Question 8

Scott and Cindy both produce only pizza and tacos.In one hour,Scott can produce 20 pizzas or 40 tacos.In one hour,Cindy can produce 30 pizzas or 40 tacos.Based on these data,
A)Cindy and Scott have the same comparative advantage in producing tacos.
B)Cindy has a comparative advantage in producing tacos.
C)neither Cindy nor Scott has a comparative advantage in producing tacos.
D)Cindy and Scott have the same comparative advantage in producing pizzas.
E)Scott has a comparative advantage in producing tacos.

Accepted Answer

Scott has a comparative advantage in producing tacos because he gives up fewer pizzas to produce tacos compared to Cindy. Scott's opportunity cost of producing one taco is 0.5 pizzas, while Cindy's opportunity cost is 0.75 pizzas.

Question 9

To achieve gains from trade,a country
A)specialises in producing a good in which it has a lower opportunity cost.
B)should produce at the midpoint of its PPF.
C)needs to have an absolute advantage in the production of at least one good.
D)needs to have an absolute advantage in the production of all goods.
E)must produce at a point beyond its PPF.

Accepted Answer

Specializing in producing a good in which a country has a lower opportunity cost means that it can produce that particular good at a lower cost than other countries, which allows for gains from trade through export and import of goods.

Question 10

In terms of a nation's production possibilities frontier,what impact does international trade have?
A)International trade shifts the production possibilities frontier outward for the goods that are exported and inward for the goods that are imported.
B)International trade shifts the nation's production possibilities frontier inward.
C)International trade allows the nation to consume at a point outside its production possibilities frontier.
D)International trade shifts the nation's production possibilities frontier outward.
E)International trade shifts the production possibilities frontier outward for the goods that are imported and inward for the goods that are exported.

Accepted Answer

International trade allows a nation to consume beyond its production possibilities frontier by specializing in the production of goods for which it has a comparative advantage and trading for other goods.

Question 11

With no international trade,a country ________ consume at a point outside of its PPF;with international trade,a country ________ consume at a point outside of its PPF.
A)cannot;cannot
B)cannot;can
C)can;cannot
D)can;can
E)None of the above answers is correct because the presence or absence of international trade has nothing to do with where a country consumes in comparison to its PPF.

Accepted Answer

With international trade, a country can consume at a point outside of its PPF because it can import goods or services that are more efficiently produced by other countries, enabling it to reallocate resources towards producing goods or services in which it has a comparative advantage. Without international trade, a country can only consume at a point on or inside its PPF because it is limited to producing goods or services using its own resources, which may not allow for the production of all desired goods or services beyond a certain point.

Question 12

In one hour John can produce 20 loaves of bread or 16 cakes.In one hour Phyllis can produce 30 loaves of bread or 15 cakes.Which of the following statements is true?
A)Phyllis has a comparative advantage in producing bread.
B)John has an absolute advantage in both goods.
C)Phyllis has a comparative advantage in producing both cakes and bread.
D)John has a comparative advantage in producing cakes.
E)Phyllis has an absolute advantage in both goods.

Accepted Answer

The answer of In one hour John can produce 20...

Question 13

Comparative advantage is directly related to which of the following concepts?
A)Opportunity cost
B)Competition
C)Fairness
D)Efficiency
E)Productivity

Accepted Answer

Comparative advantage is based on the concept of opportunity cost, which refers to the value of the next best alternative forgone when making a decision. A country has a comparative advantage in producing a certain good if it can produce it at a lower opportunity cost than another country.

Question 14

By specialising and trading,a country is able to
A)consume but not to produce combinations of goods that lie beyond its production possibilities frontier.
B)obtain the absolute advantage in the goods it produces.
C)produce but not to consume combinations of goods that lie beyond its production possibilities frontier.
D)both produce and consume combinations of goods that lie beyond its production possibilities frontier.
E)neither produce nor consume combinations of goods that lie beyond its production possibilities frontier.

Accepted Answer

The answer of By specialising and trading,a country is able...

Question 15

Consider the United States' production of soy beans and running shoes.If the United States has an absolute advantage in the production of both goods compared to China,
A)only China can gain from trade.
B)both countries can gain from trade.
C)only the United States will be able to operate beyond its PPF.
D)only the United States can gain from trade.
E)each country will be able to produce at a point beyond its PPF.

Accepted Answer

Even though the United States has an absolute advantage in the production of both goods, both countries can still gain from trade by specializing in the good that it has a comparative advantage in and trading with the other country. This will allow both countries to consume more of both goods than they could produce on their own, leading to overall gains from trade. Therefore, both countries can gain from trade.

Question 16

"Comparative advantage" is defined as a situation in which one person can produce
A)a good for a lower opportunity cost than another person.
B)more of a good than another person.
C)a good for a lower dollar cost than another person.
D)more of all goods than another person.
E)all goods for lower opportunity costs than another person.

Accepted Answer

Comparative advantage is based on opportunity cost, which measures the trade-off of producing one good in terms of the next best alternative that is given up. If one person can produce a good at a lower opportunity cost than another person, they have a comparative advantage in producing that good.

Question 17

Australia is one of the richest nations in the world,
A)so it might not have a comparative advantage in producing any goods.
B)so it must have a comparative advantage in the production of all goods.
C)so it does not need to trade with poor nations in order to achieve any gains from trade.
D)so it must have an absolute advantage in the production of all goods.
E)but it can still benefit from specialisation and trade.

Accepted Answer

Being one of the richest nations in the world does not necessarily mean that Australia has an absolute advantage in the production of all goods. However, it can still benefit from specialisation and trade by focusing on producing goods in which it has a comparative advantage and trading with other nations for goods in which they have a comparative advantage. This will lead to gains from trade that can increase economic welfare for Australia.

Question 18

Specialisation and trade make a country better off because,with trade,the country can consume at a point
A)on its trading partner's production possibilities frontier.
B)outside its production possibilities frontier.
C)on its production possibilities frontier.
D)inside its trading partner's production possibilities frontier.
E)inside its production possibilities frontier.

Accepted Answer

Specialization allows a country to produce goods and services more efficiently, leading to an increase in its production possibilities frontier. By trading with other countries, the country can consume at a point outside its own production possibilities frontier. This is because trade allows it to obtain goods and services that it cannot produce efficiently on its own. Therefore, choice B is the best answer.

Quiz 3: The Economic Problem

Specialisation and trade

Scott and Cindy both produce only pizza and tacos.In one hour,Scott can produce 20 pizzas or 40 tacos.In one hour,Cindy can produce 30 pizzas or 40 tacos.Cindy's opportunity cost of producing 1 taco is

Scott and Cindy both produce only pizza and tacos.In one hour,Scott can produce 20 pizzas or 40 tacos.In one hour,Cindy can produce 30 pizzas or 40 tacos.Scott's opportunity cost of producing 1 taco is

If workers in Mexico produce fewer goods and services per hour than workers in the United States in all areas of production,then

The gains from trade include i.lower prices from competition. Ii) greater output from specialisation. Iii) greater variety of goods and services available.

In one hour John can produce 20 loaves of bread or 8 cakes.In one hour Phyllis can produce 30 loaves of bread or 15 cakes.Which of the following statements is true?

If a nation has an absolute advantage in producing a good,then it

Scott and Cindy both produce only pizza and tacos.In one hour,Scott can produce 20 pizzas or 40 tacos.In one hour,Cindy can produce 30 pizzas or 40 tacos.Based on these data,

To achieve gains from trade,a country

In terms of a nation's production possibilities frontier,what impact does international trade have?

With no international trade,a country consume at a point outside of its PPF;with international trade,a country consume at a point outside of its PPF.

In one hour John can produce 20 loaves of bread or 16 cakes.In one hour Phyllis can produce 30 loaves of bread or 15 cakes.Which of the following statements is true?

Comparative advantage is directly related to which of the following concepts?

By specialising and trading,a country is able to

Consider the United States' production of soy beans and running shoes.If the United States has an absolute advantage in the production of both goods compared to China,

"Comparative advantage" is defined as a situation in which one person can produce

Australia is one of the richest nations in the world,

Specialisation and trade make a country better off because,with trade,the country can consume at a point