Question 1

An economy produces only food and shelter. There are two individuals in the economy: Bill and Mary. Mary's opportunity cost of producing 1 unit of shelter is 2 units of food. Bill's opportunity cost of producing 1 unit of shelter is 4 units of food.
A) Bill has a comparative advantage over Mary in the production of shelter.
B) Mary has a comparative advantage over Bill in the production of food.
C) Mary has a comparative advantage over Bill in the production of shelter.
D) Bill has an absolute advantage over Mary in the production of shelter.

Accepted Answer

Mary has a lower opportunity cost for producing shelter (2 units of food) compared to Bill's higher opportunity cost (4 units of food), indicating Mary's comparative advantage in shelter production.

Question 2

Country A can produce 1 cello by giving up the production of 5 guitars. Country B can produce 1 guitar by giving up the production of 4 cellos. In which good does country A have a comparative advantage?
A) guitars
B) cellos
C) both goods
D) neither good

Accepted Answer

Country A has a comparative advantage in guitars because it has a lower opportunity cost (1/5 of a cello per guitar) compared to Country B's opportunity cost for producing guitars (4 cellos per guitar).

Question 3

Tom takes 20 minutes to cook an egg and 5 minutes to make a sandwich. Jerry takes 15 minutes to cook an egg and 3 minutes to make a sandwich. If Tom and Jerry trade
A) Tom will benefit and Jerry will not.
B) Jerry will benefit and Tom will not.
C) both will benefit.
D) none of them will benefit.

Accepted Answer

Tom is better at making a sandwich (5 minutes) than Jerry (3 minutes) and Jerry is better at cooking an egg (15 minutes) than Tom (20 minutes). Therefore, if they trade tasks, they will both benefit as they will each be doing the task they are better at and can do more quickly. Tom will make sandwiches while Jerry cooks the eggs, and they will both complete their tasks more quickly than if they did both tasks individually.

Question 4

Suppose Joe can prepare 10 sandwiches or 5 pizzas in an hour and Beth can produce 12 sandwiches or 9 pizzas. Which of the following is TRUE?
A) Beth should produce pizza because she has a higher opportunity cost of producing pizza than does Joe.
B) Beth should produce pizza because she has a lower opportunity cost of producing pizza than does Joe.
C) Joe should produce pizza because he has a higher opportunity cost of producing pizza than does Beth.
D) Joe should produce pizza because he has a lower opportunity cost of producing pizza than does Beth.

Accepted Answer

Beth has a lower opportunity cost of producing pizza compared to Joe since she can produce 9 pizzas or 12 sandwiches in an hour, whereas Joe can only produce 5 pizzas or 10 sandwiches. Therefore, Beth should produce pizza.

Question 5

A person has a comparative advantage in an activity whenever he or she
A) has an absolute advantage in the activity.
B) can perform the activity at a lower opportunity cost than can anyone else.
C) can do the activity in less time than anyone else.
D) can do everything better than anyone else.

Accepted Answer

Comparative advantage is based on opportunity cost, which means the value of the next best alternative that must be given up in order to engage in a certain activity. Therefore, a person has a comparative advantage in an activity when they can perform the activity at a lower opportunity cost than anyone else.

Question 6

An increase in the nation's capital stock will
A) shift the PPF outward.
B) cause a movement along the PPF up and to the left.
C) cause a movement along the PPF down and to the right.
D) move the nation from producing within the PPF to producing at a point closer to the PPF.

Accepted Answer

An increase in the nation's capital stock (i.e. an increase in the stock of physical tools, machines, and buildings) will improve the productivity of workers, which means that more output can be produced with the same amount of inputs. This will shift the production possibilities frontier (PPF) outward, as the economy is now capable of producing more goods and services at all levels of input. Therefore, the best choice is A.

Question 7

Tom takes 20 minutes to cook an egg and 5 minutes to make a sandwich. Jerry takes 15 minutes to cook an egg and 3 minutes to make a sandwich. Tom has a comparative advantage in ________ and Jerry has a comparative advantage in ________.
A) cooking eggs; making sandwiches
B) making sandwiches; cooking eggs
C) neither of these activities; both activities
D) both activities; neither of these activities

Accepted Answer

Tom takes less time to cook eggs than Jerry, so he has a comparative advantage in cooking eggs. Jerry takes less time to make sandwiches than Tom, so he has a comparative advantage in making sandwiches.

Question 8

A person has a comparative advantage in an activity if that person can
A) produce more goods in a given amount of time than another person.
B) produce fewer goods in a given amount of time than another person.
C) perform the activity at a lower opportunity cost than anyone else.
D) perform that activity at a higher opportunity cost than anyone else.

Accepted Answer

Comparative advantage means being able to produce a good or service at a lower opportunity cost than another person or country. Therefore, choice C is the correct answer, as it directly describes what it means to have a comparative advantage. Choices A and B do not take opportunity cost into account and only focus on output, while choice D is the opposite of comparative advantage.

Question 9

Because of the existence of comparative advantage, the total output of goods is higher when each producer
A) produces many different goods.
B) produces at the midpoint of its PPF.
C) specializes in the production of one good or a few goods.
D) makes both intermediate and final goods.

Accepted Answer

Comparative advantage suggests that each producer should specialize in producing the good(s) for which they have the lowest opportunity cost. By focusing on these goods, producers can increase their efficiency and productivity and therefore, the total output of goods is higher. Specialization allows producers to take advantage of economies of scale, which ultimately leads to higher total output.

Question 10

Suppose Joe can prepare 20 sandwiches or 10 pizzas in an hour and Beth can produce 36 sandwiches or 27 pizzas. The concept of comparative advantage concludes that
A) Beth should produce both goods because she can produce more of both goods in an hour than can Joe.
B) Beth should produce sandwiches and Joe should produce pizza.
C) Beth should produce pizza and Joe should produce sandwiches.
D) Beth should produce both goods and Joe should produce sandwiches.

Accepted Answer

To determine comparative advantage, we need to compare the opportunity costs of producing each good. Opportunity cost is the alternative that must be given up to produce a particular good or service.

For Joe, his opportunity cost of producing 1 sandwich is 1/2 pizza (since he can produce 20 sandwiches or 10 pizzas in an hour).

For Beth, her opportunity cost of producing 1 sandwich is 3/4 pizza (since she can produce 36 sandwiches or 27 pizzas in an hour).

Comparing these opportunity costs, we can see that Joe has a lower opportunity cost of producing sandwiches (1/2 pizza) compared to Beth's opportunity cost (3/4 pizza). This means that Joe has a comparative advantage in producing sandwiches. Conversely, Beth has a lower opportunity cost of producing pizza (4/3 sandwiches) compared to Joe's opportunity cost (2 sandwiches). This means that Beth has a comparative advantage in producing pizza.

Therefore, based on comparative advantage, it makes sense for Beth to produce pizza and Joe to produce sandwiches. By specializing in these goods, they can each produce more than if they tried to produce both goods on their own.

Question 11

Comparative advantage is
A) the ability to perform an activity at a lower opportunity cost than anyone else.
B) the ability to perform an activity at a higher opportunity cost than anyone else.
C) the ability to perform an activity at a zero opportunity cost.
D) another name for absolute advantage.

Accepted Answer

Comparative advantage is the ability to produce a good or service at a lower opportunity cost than others. This means that a country or individual should focus on producing the good or service in which they have a lower opportunity cost and trade with others for goods or services in which they have a higher opportunity cost.

Question 12

The kitchen manager at an Italian restaurant is deciding what assignments he should give to his two cooks, John and David. John can make 25 pizzas or 40 servings of pasta per hour and David can make 20 pizzas or 30 servings of pasta. Which of the following should be the manager's choice?
A) Fire David because he is not as productive as John. John will do both jobs.
B) John will make pizza because he has comparative advantage in making pizza.
C) David will make pizza because he has comparative advantage in making pizza.
D) John and David both will spend half their time making pizza and half their time making pasta because each has a comparative advantage in making pizza.

Accepted Answer

David should make pizza because he has a comparative advantage in making pizza. This is because he has a lower opportunity cost of making pizza compared to making pasta. To make 1 pizza, John gives up 1.6 servings of pasta (40/25) while David gives up 0.67 servings of pasta (30/20). Therefore, David's opportunity cost of making 1 pizza is lower than John's, and thus David has a comparative advantage in making pizza. This means that David should make pizza while John should make pasta since John has a comparative advantage in making pasta.

Question 13

In an eight-hour day, Andy can produce either 24 loaves of bread or 8 pounds of butter. In an eight-hour day, Bob can produce either 8 loaves of bread or 8 pounds of butter. Andy has a comparative advantage in the production of
A) bread, while Bob has a comparative advantage in the production of butter.
B) butter, while Bob has a comparative advantage in the production of bread.
C) bread and neither has a comparative advantage in the production of butter.
D) both bread and butter.

Accepted Answer

The answer of In an eight-hour day, Andy can produce...

Question 14

Individuals A and B both produce good X. A has a comparative advantage in the production of good X if A
A) has a lower opportunity cost of producing good X than has B.
B) has a lower opportunity cost of producing good X than of producing good Y.
C) can produce more units of X in a given time period than can B.
D) can produce X using newer technology than can B.

Accepted Answer

Comparative advantage is defined as the ability to produce a good or service at a lower opportunity cost than another producer. In this case, A has a comparative advantage in the production of good X if they have a lower opportunity cost of producing it than B.

Question 15

A country possesses a comparative advantage in the production of a good if
A) the opportunity cost in terms of forgone output of alternative goods is lower for this country than it is for its trading partners.
B) it possesses an absolute advantage in the production of this good.
C) it is able to produce more of this good per hour than can any other country.
D) all of the above.

Accepted Answer

Comparative advantage refers to the ability of a country to produce a particular good or service at a lower opportunity cost than its trading partners. Therefore, the correct answer is A, as it directly relates to the concept of opportunity cost, which is a key aspect of comparative advantage. Option B refers to absolute advantage, which is a different concept that refers to a country's ability to produce a good or service more efficiently than another country. Option C is not necessarily true, as a country may have a lower opportunity cost despite producing less per hour if it has a comparative advantage.

Question 16

A person has a comparative advantage in producing a particular good if that person
A) has higher productivity in producing it than anyone else has.
B) can produce it at lower opportunity cost than anyone else can.
C) has less desire to consume that good than anyone else has.
D) has more human capital related to that good than anyone else has.

Accepted Answer

Comparative advantage is the ability of an individual or country to produce a particular good or service at a lower opportunity cost than any other individual or country. Therefore, option B aligns with the definition of comparative advantage. Options A, C, and D are not relevant because having higher productivity, less desire, or more human capital in a particular good does not necessarily mean that the individual has a lower opportunity cost in producing that good.

Question 17

Suppose that in an hour Joe can prepare 10 sandwiches or 5 pizzas. The opportunity cost of Joe producing one sandwich is
A) 2 pizzas.
B) 1/2 pizza.
C) 5 pizzas.
D) 1 pizza.

Accepted Answer

The opportunity cost of producing one sandwich for Joe is the amount of pizza he has to give up to make one sandwich. Since Joe can make 5 pizzas in the time it takes him to make 10 sandwiches, the opportunity cost of one sandwich is 1/2 pizza (5 pizzas / 10 sandwiches = 1/2 pizza per sandwich).

Question 18

The opportunity cost of producing one ton of wheat for Country Gamma is 4 tons of corn. The opportunity cost of producing one ton of wheat for Country Beta is 8 tons of corn. Which country has the comparative advantage in the production of wheat?
A) Gamma
B) Beta
C) Neither country has a comparative advantage.
D) Both countries have the comparative advantage.

Accepted Answer

Country Gamma has the lower opportunity cost of producing one ton of wheat (4 tons of corn) compared to Country Beta (8 tons of corn). This means that for Country Gamma, producing one ton of wheat only requires giving up 4 tons of corn, while for Country Beta, producing the same amount of wheat would require giving up twice as much corn (8 tons). Therefore, Country Gamma has the comparative advantage in the production of wheat.

Question 19

Tom takes 20 minutes to cook an egg and 5 minutes to make a sandwich. Jerry takes 15 minutes to cook an egg and 3 minutes to make a sandwich. Both individuals will be better off if
A) Tom trades sandwiches in exchange for eggs.
B) Jerry trades sandwiches in exchange for eggs.
C) they trade, no matter who trades sandwiches and who eggs.
D) they don't trade.

Accepted Answer

The answer of Tom takes 20 minutes to cook an...

Question 20

Which of the following describes comparative advantage?
A) To produce a bushel of wheat Farmer John must give up 2 bushels of corn whereas Farmer Ben must give up 3 bushels of corn.
B) Company A can produce 4 boxes of cereal in a day whereas Company B can produce 5 boxes of cereal in a day.
C) Firm A can produce a good at a cost of $3 and Firm B can produce the good at a cost of $4.
D) Jane can type 50 words per minute and Joe can type 60 words per minute.

Accepted Answer

Comparative advantage refers to the ability of a producer to produce a good or service at a lower opportunity cost than another producer. In this case, Farmer John has a comparative advantage in producing wheat because he has to give up fewer bushels of corn to produce one bushel of wheat compared to Farmer Ben.

Quiz 2: The Economic Problem

An economy produces only food and shelter. There are two individuals in the economy: Bill and Mary. Mary's opportunity cost of producing 1 unit of shelter is 2 units of food. Bill's opportunity cost of producing 1 unit of shelter is 4 units of food.

Country A can produce 1 cello by giving up the production of 5 guitars. Country B can produce 1 guitar by giving up the production of 4 cellos. In which good does country A have a comparative advantage?

Tom takes 20 minutes to cook an egg and 5 minutes to make a sandwich. Jerry takes 15 minutes to cook an egg and 3 minutes to make a sandwich. If Tom and Jerry trade

Suppose Joe can prepare 10 sandwiches or 5 pizzas in an hour and Beth can produce 12 sandwiches or 9 pizzas. Which of the following is TRUE?

A person has a comparative advantage in an activity whenever he or she

An increase in the nation's capital stock will

Tom takes 20 minutes to cook an egg and 5 minutes to make a sandwich. Jerry takes 15 minutes to cook an egg and 3 minutes to make a sandwich. Tom has a comparative advantage in and Jerry has a comparative advantage in .

A person has a comparative advantage in an activity if that person can

Because of the existence of comparative advantage, the total output of goods is higher when each producer

Suppose Joe can prepare 20 sandwiches or 10 pizzas in an hour and Beth can produce 36 sandwiches or 27 pizzas. The concept of comparative advantage concludes that

Comparative advantage is

The kitchen manager at an Italian restaurant is deciding what assignments he should give to his two cooks, John and David. John can make 25 pizzas or 40 servings of pasta per hour and David can make 20 pizzas or 30 servings of pasta. Which of the following should be the manager's choice?

In an eight-hour day, Andy can produce either 24 loaves of bread or 8 pounds of butter. In an eight-hour day, Bob can produce either 8 loaves of bread or 8 pounds of butter. Andy has a comparative advantage in the production of

Individuals A and B both produce good X. A has a comparative advantage in the production of good X if A

A country possesses a comparative advantage in the production of a good if

A person has a comparative advantage in producing a particular good if that person

Suppose that in an hour Joe can prepare 10 sandwiches or 5 pizzas. The opportunity cost of Joe producing one sandwich is

The opportunity cost of producing one ton of wheat for Country Gamma is 4 tons of corn. The opportunity cost of producing one ton of wheat for Country Beta is 8 tons of corn. Which country has the comparative advantage in the production of wheat?

Tom takes 20 minutes to cook an egg and 5 minutes to make a sandwich. Jerry takes 15 minutes to cook an egg and 3 minutes to make a sandwich. Both individuals will be better off if

Which of the following describes comparative advantage?