Question 1

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 as they are able to exchange goods or services that they need or want with each other. However, the benefits may not always be equal, as one party may be able to get a better deal or have more bargaining power in the exchange. Ultimately, both parties benefit in some way, otherwise they would not engage in the trade.

Question 2

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 3

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 generally leads to benefits for both trading countries, there may be some individuals or groups within those countries who do not benefit or may actually be harmed by trade, such as those who lose their jobs due to competition with imports or those who are unable to compete in foreign markets. Therefore, trade does not guarantee benefits for all individuals within trading countries.

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.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 determine how many tables each woodworker could have made instead of making one chair.
For Mike, the opportunity cost of 1 chair is 1/18 of a table (since he can make 18 chairs or 6 tables in a month). 
For Sandy, the opportunity cost of 1 chair is 1/25 of a table (since she can make 25 chairs or 5 tables in a month).

Therefore, the best answer is C, which says that the opportunity cost of 1 chair is 1/3 of a table for Mike and 1/5 of a table for Sandy.

Question 5

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

Accepted Answer

Comparative advantage reflects relative opportunity cost, meaning the cost of producing a particular good or service compared to the cost of producing another good or service. A country or individual can have a comparative advantage in producing a good or service if their opportunity cost of producing it is lower than that of another country or individual. This concept is important in understanding international trade and which goods or services countries should specialize in producing and trading.

Question 6

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

Specializing in the good for which they have a comparative advantage may lead to an increase in total production and the size of the economic pie. However, it does not necessarily mean that each person's production possibilities frontier will shift outward. The production possibilities frontier would only shift outward if there was an increase in productivity due to specialization, which is not necessarily guaranteed.

Question 7

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 8

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 making tables as he can make 6 in a month while Sandy can make only 5. Sandy has an absolute advantage in making chairs as she can make 25 in a month while Mike can make only 18. Therefore, the best choice is to have Mike specialize in making tables and Sandy specialize in making chairs, as it would maximize their production efficiency.

Question 9

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 10

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 determined based on which country can produce a good or service using fewer resources than the other country. This means that the country with the highest productivity has an absolute advantage in producing that good or service.

Question 11

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 12

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

In order to determine the producer's comparative advantage, we need to compare their opportunity cost with other producers' opportunity cost. Just because the producer has a lower opportunity cost for shirts doesn't necessarily mean they have a comparative advantage in shirts overall. Therefore, we need to consider how their opportunity cost compares with other producers to determine their true comparative advantage.

Question 13

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 goods at a lower opportunity cost than other countries. This leads to an increase in efficiency and productivity which can boost world output of all goods. As a result, all countries can potentially benefit from the gains of trade.

Question 14

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 linen, which means that it can produce linen at a lower opportunity cost than Russia. On the other hand, Egypt has an absolute advantage in the production of beer, which means that it can produce beer more efficiently than Russia. Therefore, it would make sense for Egypt to specialize in linen production and export it to Russia in exchange for goods that Russia produces more efficiently, such as beer. Hence, the pattern of trade would be Egypt exporting linen to Russia.

Question 15

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, it is still cheaper for Spain to produce cars based on their comparative advantage. Therefore, Germany would import cars from Spain.

Question 16

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 17

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 individuals specialize in producing the goods and services for which they have a comparative advantage, they become more productive, saving time and resources, and efficient in producing those goods. As a result, they can increase their output levels. This increase in output means more goods and services are produced, leading to a net increase in the economy's total output.

Question 18

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, it means that it can produce that product at a lower opportunity cost than another country. Therefore, the country should focus on producing and exporting that product to other countries where it does not have a comparative advantage. This will allow the country to maximize its economic output and increase its international trade.

Question 19

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 refers to whatever must be given up to obtain an item. Option A (efficiency) refers to maximizing output with minimal input, option B (externality) refers to the impact of a decision on third parties who are not involved in the decision-making process, and option D (equilibrium) refers to a state of balance where the supply and demand for a product are equal.

Question 20

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 calculate the opportunity cost of producing each item. The opportunity cost is the value of the next best alternative that must be given up in order to produce that item.

For Mike: 
Opportunity cost of 1 table = 3 chairs (since he can make 6 tables or 18 chairs in a month) 
Opportunity cost of 1 chair = 1/3 table

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

Comparing the opportunity costs, we can see that Mike has a lower opportunity cost for producing tables (1 table costs him 3 chairs) than Sandy (1 table costs her 5 chairs), so Mike has a comparative advantage in table production.

Conversely, Sandy has a lower opportunity cost for producing chairs (1 chair costs her 1/5 table) than Mike (1 chair costs him 1/3 table), so Sandy has a comparative advantage in chair production.

Therefore, the best choice is D, Mike in tables and Sandy in chairs.

Quiz 3: Interdependence and the Gains From Trade

How does trade benefit the two parties involved?

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

Which of the following does trade NOT allow for?

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 does comparative advantage reflect?

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

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?

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?

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?

How is absolute advantage found?

What is the opportunity cost of an item?

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?

What happens when countries specialize according to their comparative advantage?

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?

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 6tables or 18 chairs,where Sandy can make 5 tables or 25 chairs.What is the opportunity cost of 1 table?

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

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

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 6 tables or 18 chairs,where Sandy can make 5 tables or 25 chairs.Who has a comparative advantage in which product?