Question 1

-Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour. The opportunity cost of producing a unit of Y is
A) 1 unit of X per unit of Y for Agnes and 2 units of X per unit of Y for Brenda.
B) 1 unit of X per unit of Y for Agnes and 1/2 unit of X per unit of Y for Brenda.
C) 1 hour for Agnes and 1/2 hour for Brenda.
D) 1 hour for Agnes and 2 hours for Brenda.

Accepted Answer

The opportunity cost of producing a unit of Y for Agnes is 1 unit of X because she can produce either 1 unit of X or 1 unit of Y in an hour. For Brenda, the opportunity cost of producing a unit of Y is 1/2 unit of X because she can produce 2 units of X or 4 units of Y in an hour, so for every unit of Y, she sacrifices 1/2 unit of X.

Question 2

-An economy produces at point a on the PPF shown in the above figure. A drought reduces the amount of wheat produced and the economy produces at point b. The opportunity cost of a unit of wheat ________.
A) remains the same
B) increases
C) is impossible to calculate without numbers on the axes
D) decreases

Accepted Answer

When an economy moves from point a to point b on the PPF due to a drought, it means that less wheat is being produced. If the economy has to give up more of another good to produce a unit of wheat, this indicates that the opportunity cost of producing wheat has increased.

Question 3

-Vicky currently produces at point a in the figure above. If Vicky moves from point a to point b to point c, her opportunity cost of a modem ________.
A) decreases
B) increases
C) is zero
D) remains the same

Accepted Answer

The answer of 
-Vicky currently produces at point a in...

Question 4

-Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour. There can be gains from exchange
A) if Agnes specializes in the production of X and Brenda specializes in the production of Y.
B) if Agnes specializes in the production of Y and Brenda specializes in the production of X.
C) only if Agnes becomes faster at producing X.
D) only if Brenda becomes faster at producing X or Y.

Accepted Answer

The answer of 
-Agnes can produce either 1 unit of...

Question 5

-Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour.
A) Brenda has an absolute advantage in the production of X and Y.
B) Agnes has a comparative advantage in the production of Y.
C) Brenda has a comparative advantage in the production of X.
D) Brenda cannot gain from trade.

Accepted Answer

The answer of 
-Agnes can produce either 1 unit of...

Question 6

One of the largest categories of exports from the United States is now pop culture: movies, music, TV programming, and videos. A direct conclusion from this information is that, compared to other countries, the United States has
A) lower wages for producers of pop culture.
B) higher wages for producers of pop culture.
C) an absolute advantage in producing pop culture.
D) a comparative advantage in producing pop culture.

Accepted Answer

The fact that the United States has a large category of exports in pop culture suggests that they have a comparative advantage in producing it. This means that they are able to produce pop culture products at a lower opportunity cost compared to other countries, making them more competitive in the market. It does not necessarily indicate that the wages for producers of pop culture are higher or lower than other countries.

Question 7

A country that has a comparative advantage in producing capital goods will ________ a country that has a comparative advantage in consumption goods.
A) reap all of the gains from trade when it trades with
B) grow slower than
C) reap fewer of the gains from trade when it trades with
D) specialize in producing capital goods and trade with

Accepted Answer

A country that has a comparative advantage in producing capital goods should specialize in producing capital goods and trade with a country that has a comparative advantage in producing consumption goods. This way, both countries can benefit from trade as each country can specialize in producing what they are efficient in producing and trade with each other for the goods they are less efficient in producing. Therefore, the country will not necessarily reap all the gains from trade, but will reap some of the gains from trade.

Question 8

If Tom and Di specialize in producing the goods in which he and she have a comparative advantage and they exchange goods, then ________.
A) each will produce a combination of goods that is within her/his production possibility frontier
B) they will lose because they are no longer able to produce and consume both goods
C) each will gain because each can consume a combination of goods that is outside her/his production possibility frontier
D) one of them will gain and the other will lose

Accepted Answer

When Tom and Di specialize in producing the goods in which they have a comparative advantage and exchange goods, they can consume a combination of goods that is outside their respective production possibility frontiers, leading to gains from trade for both parties. Therefore, choice C is the correct answer.

Question 9

According to the principle of comparative advantage, if a rich country trades with a poor country, then
A) the rich country will benefit and the poor country will lose.
B) the rich country will lose and the poor country will benefit.
C) both countries will benefit.
D) neither of the countries will benefit.

Accepted Answer

According to the principle of comparative advantage, each country should specialize in producing goods that they have a lower opportunity cost for producing and then trade with each other. This leads to a situation where both countries can benefit from the exchange. Therefore, both the rich and poor country can benefit from trading with each other.

Question 10

The idea of comparative advantage implies that people or countries
A) should specialize in the production of goods.
B) can gain from trading.
C) can consume at a point outside their production possibilities frontier.
D) all of the above.

Accepted Answer

The concept of comparative advantage suggests that individuals or countries should focus on producing goods for which they have a lower opportunity cost and trade with others for goods they don't produce efficiently. This leads to specialization, mutual gains from trade, and the ability to consume beyond their production possibilities frontier. Therefore, all of the above choices are correct.

Question 11

To obtain the gains available from comparative advantage, individuals or countries must do more than specialize; they must also
A) save.
B) invest.
C) engage in research and development.
D) trade.

Accepted Answer

Specialization alone does not guarantee gains from trade. In order to obtain these gains, individuals or countries must also trade the goods or services they specialize in producing with others who specialize in producing different goods or services. This enables both parties to benefit from each other's strengths and comparative advantages. While saving, investing, and engaging in research and development are important factors for economic growth, they are not necessary for obtaining gains from comparative advantage through trade.

Question 12

-The figure above shows Freda's PPF. Freda currently produces 10 packets of fudge and no cookies. If Freda decides to produce 1 packet of cookies, her opportunity cost of the packet of cookies is ________ of fudge.
A) 1 packet
B) 1/2 packet
C) 2 packets
D) 0 packets

Accepted Answer

The opportunity cost of producing 1 packet of cookies is the amount of fudge Freda has to give up to produce that packet of cookies. From the given scenario, if Freda produces 1 packet of cookies and has to give up 2 packets of fudge to do so, the opportunity cost of 1 packet of cookies is 2 packets of fudge.

Question 13

One of the largest categories of exports from the United States is now pop culture: movies, music, TV programming, and videos. A direct conclusion from this information is that, compared to other countries, the United States has
A) lower wages for producers of pop culture.
B) higher wages for producers of pop culture.
C) a higher opportunity cost of producing pop culture.
D) a lower opportunity cost of producing pop culture.

Accepted Answer

The fact that the United States exports a large amount of pop culture suggests that it has a comparative advantage in producing it. This means that the opportunity cost of producing pop culture is relatively low in the US compared to other countries, allowing it to produce and export these goods at lower costs and potentially higher quantities. Therefore, the answer is D, a lower opportunity cost of producing pop culture. It does not necessarily indicate anything about the wages of producers.

Question 14

By specialization and trade, two individuals can
A) consume at a point beyond their individual production possibilities frontiers.
B) increase their comparative advantage.
C) increase their absolute advantage.
D) shift their individual production possibilities frontiers outward.

Accepted Answer

By specializing in producing goods or services that they have a comparative advantage in, individuals can increase their total output beyond what they could produce on their own. This enables them to consume at a point beyond their individual production possibilities frontiers.

Question 15

-In the figure above, Jill is producing at point A. Jill's opportunity cost producing one pair of pants is
A) 2 shirts per pair of pants.
B) 3 shirts per pair of pants.
C) 3/5 of a shirt per pair of pants.
D) 5/3 of a shirt per pair of pants.

Accepted Answer

The answer of 
-In the figure above, Jill is producing...

Question 16

When a nation has a comparative advantage in the production of a particular good
A) the nation tends to avoid specialization.
B) the comparative advantage encourages self-sufficiency.
C) the opportunity cost of producing that good is higher than that of other goods.
D) the nation can gain from trade.

Accepted Answer

When a nation has a comparative advantage in the production of a particular good, it means that it can produce that good at a lower opportunity cost than other nations. This presents an opportunity for the nation to trade that good with other nations in exchange for goods it cannot produce as efficiently. This way, the nation can gain from trade, and both parties involved can benefit from the transaction.

Question 17

George and Michael can gain from exchange
A) unless one has an absolute advantage in all goods.
B) if each specializes in the production of the good for which he has the higher opportunity cost.
C) if each specializes in the production of the good for which he has the lower opportunity cost.
D) unless they have different opportunity costs.

Accepted Answer

George and Michael can gain from exchange if each specializes in the production of the good for which he has the lower opportunity cost. This allows each to produce what they are relatively more efficient at, leading to gains from trade.

Question 18

-In the figure above, both Joe and Jill initially produce at point A. If Joe and Jill realize that they each possess a comparative advantage, which outcome can we expect?
A) Joe will specialize in shirts and Jill will specialize in pants.
B) Joe will specialize in pants and Jill will specialize in shirts.
C) Joe and Jill each will be able to consume more than 2 shirts and 2 pairs of pants.
D) Both answers B and C are correct.

Accepted Answer

When individuals or countries specialize in goods in which they have a comparative advantage, they can trade with each other to improve their consumption possibilities beyond their production possibilities. This means both Joe and Jill can end up consuming more than they could produce on their own, assuming Joe specializes in the good he produces more efficiently compared to Jill, and vice versa for Jill.

Question 19

Tom and Di grow tomatoes and turnips. Tom has a comparative advantage in growing tomatoes if ________.
A) Tom can grow more tomatoes than Di can
B) his opportunity cost of tomatoes is less than Di's opportunity cost of tomatoes
C) his opportunity cost of tomatoes is less than his opportunity cost of turnips
D) his marginal benefit from tomatoes is greater than Di's

Accepted Answer

Comparative advantage is determined by opportunity cost, which is the value of the next best alternative that must be forgone to produce a unit of a good or service. If Tom has a lower opportunity cost of producing tomatoes compared to Di, he has a comparative advantage in growing tomatoes. Therefore, option B is the best choice as it reflects the definition of comparative advantage. The other options do not capture the idea of opportunity cost and comparative advantage.

Question 20

-In the figure above, Joe is producing at point A. Joe's opportunity cost of producing one shirt is
A) 5/3 of a pair of pants per shirt.
B) 3/5 of a pair of pants per shirt.
C) 5 pairs of pants per shirt.
D) 2 pairs of pants per shirt.

Accepted Answer

The answer of 
-In the figure above, Joe is producing...

Quiz 2: The Economic Problem

-Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour. The opportunity cost of producing a unit of Y is

-An economy produces at point a on the PPF shown in the above figure. A drought reduces the amount of wheat produced and the economy produces at point b. The opportunity cost of a unit of wheat ________.

-Vicky currently produces at point a in the figure above. If Vicky moves from point a to point b to point c, her opportunity cost of a modem ________.

-Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour. There can be gains from exchange

-Agnes can produce either 1 unit of X or 1 unit of Y in an hour, while Brenda can produce either 2 units of X or 4 units of Y in an hour.

One of the largest categories of exports from the United States is now pop culture: movies, music, TV programming, and videos. A direct conclusion from this information is that, compared to other countries, the United States has

A country that has a comparative advantage in producing capital goods will ________ a country that has a comparative advantage in consumption goods.

If Tom and Di specialize in producing the goods in which he and she have a comparative advantage and they exchange goods, then ________.

According to the principle of comparative advantage, if a rich country trades with a poor country, then

The idea of comparative advantage implies that people or countries

To obtain the gains available from comparative advantage, individuals or countries must do more than specialize; they must also

-The figure above shows Freda's PPF. Freda currently produces 10 packets of fudge and no cookies. If Freda decides to produce 1 packet of cookies, her opportunity cost of the packet of cookies is ________ of fudge.

One of the largest categories of exports from the United States is now pop culture: movies, music, TV programming, and videos. A direct conclusion from this information is that, compared to other countries, the United States has

By specialization and trade, two individuals can

-In the figure above, Jill is producing at point A. Jill's opportunity cost producing one pair of pants is

When a nation has a comparative advantage in the production of a particular good

George and Michael can gain from exchange

-In the figure above, both Joe and Jill initially produce at point A. If Joe and Jill realize that they each possess a comparative advantage, which outcome can we expect?

Tom and Di grow tomatoes and turnips. Tom has a comparative advantage in growing tomatoes if ________.

-In the figure above, Joe is producing at point A. Joe's opportunity cost of producing one shirt is