Question 1

A laissez-faire policy is one in which:

Accepted Answer

A laissez-faire policy is based on the belief that economies function best when left to their own devices without government intervention. Therefore, the government should keep regulation of economic activity to a minimum.

Question 2

______________ states that the cost or price of a commodity is determined by,or can be inferred exclusively from,its labor content.

Accepted Answer

The labor theory of value states that the cost or price of a commodity is determined by, or can be inferred exclusively from, its labor content. This theory was developed by classical economists such as Adam Smith and David Ricardo.

Question 3

Adam Smith advocated a policy in which:

Accepted Answer

Adam Smith believed in the concept of laissez-faire, which means minimal government intervention in economic activity. He argued that the market could effectively regulate itself and that government intervention was often counterproductive. Therefore, keeping regulation of economic activity to a minimum is the best choice that aligns with Adam Smith's ideology.

Question 4

The Wealth of Nations was published in 1776 by:

Accepted Answer

The Wealth of Nations was written by Adam Smith and published in 1776.

Question 5

The school of thought during the seventeenth and eighteenth centuries proposing that the way for a nation to become richer was to restrict imports and stimulate exports was:

Accepted Answer

The school of thought described in the question is known as mercantilism, which emphasized the accumulation of wealth through a favorable balance of trade. This involved restricting imports and promoting exports to increase the inflow of gold and silver into the nation's economy.

Question 6

The mercantilists would have objected to:

Accepted Answer

Mercantilists believed that a country's wealth was best measured by its accumulation of gold and silver and that trade surpluses were necessary to achieve this. Therefore, they would have objected to open markets and free trade policies that would have allowed for greater imports and less barriers to entry for foreign goods.

Question 7

Which of these economists considered absolute advantage in production to be the basis for trade between nations?

Accepted Answer

Adam Smith is the economist who considered absolute advantage in production to be the basis for trade between nations. In his book "The Wealth of Nations", Smith argued that countries should specialize in producing goods that they are most efficient at producing, and then trade with other countries for goods that they cannot produce as efficiently. This theory is known as the theory of absolute advantage.

Question 8

The ability of one nation to produce a commodity using fewer resources than another nation is:

Accepted Answer

Absolute advantage refers to the ability of a country to produce a particular good or service more efficiently than another country, using fewer resources.

Question 9

According to the mercantilists:

Accepted Answer

Mercantilists believed that trade was a zero-sum game, where one nation's gain came at the expense of another nation. They believed that a country should maximize its exports and minimize its imports to accumulate wealth and power. Therefore, the best choice is A).

Question 10

When the amount of a commodity that must be given up to produce each additional unit of another commodity,regardless of the amount of the commodity foregone,is the same at every level of production,which of the following exists?

Accepted Answer

Constant opportunity costs exist when the amount of a commodity that must be given up to produce each additional unit of another commodity remains the same at every level of production. This means that there is no advantage gained by producing one commodity over another, and therefore no comparative or absolute advantage. Increasing opportunity costs exist when the amount of a commodity foregone to produce an additional unit of another commodity increases as the production of the latter commodity increases.

Question 11

If wage in country A is $6/hour and in country B is £2/hour,and the exchange rate between a $ and a £ is 1£=2$,then given the information in the table,what is the dollar price of a bushel of apple in Country B? $ \begin{array}{lcc} & \text { Country A } & \text { Country B } \ \text { Apple (bushels/hr) } & 8 & 1 \ \text { Orange (bushels/hr) } & 2 & 3\end{array} $

Accepted Answer

In Country B, the wage is £2/hour, and 1 bushel of apples is produced per hour. Therefore, the cost in pounds is £2/bushel. With the exchange rate of 1£ = 2$, the dollar price is 2 * 2 = $4.00 per bushel.

Question 12

______________ is the utilization of all of a trading nation's resources in the production of only one commodity.

Accepted Answer

Complete specialization refers to the utilization of all resources in producing only one commodity. This strategy may increase the efficiency of production and lower costs, but it also leaves the trading nation vulnerable to fluctuations in demand or supply shocks in that particular commodity.

Question 13

Which of these economists considered comparative advantage in production to be the basis for trade between nations?

Accepted Answer

David Ricardo is credited with developing the theory of comparative advantage, which states that countries should specialize in producing goods and services that they can produce at a lower opportunity cost than other countries. This theory has become a fundamental principle of international trade theory.

Question 14

The analysis of economic forces that justify the existence of trade and its degree between two nations is referred to as:

Accepted Answer

The "basis for trade" refers to the economic forces and reasons that justify why trade occurs between nations and the extent of that trade.

Question 15

If wage in country A is $6/hour and in country B is £2/hour,and the exchange rate between a $ and a £ is 1£=2$,then given the information in the table,which of the following is true? $\begin{array}{|l|c|c|}
\hline & \text {Country A} &\text { Country B} \
\hline\text { Apple (bushels/hr) }& 8 & 1 \
\hline\text { Orange (bushels/hr)} & 2 & 3 \
\hline
\end{array}$

Accepted Answer

To determine which country has comparative advantage, we look at the opportunity cost of producing each good in each country. 
In country A, to produce one apple, they have to give up producing 2 oranges (6/3=2). 
In country B, to produce one apple, they have to give up producing 4 oranges (2/0.5=4).
Therefore, country A has a lower opportunity cost (2 oranges) to produce one apple compared to country B (4 oranges). Therefore, country A has comparative advantage in producing apples.

Question 16

_____________ explains how mutually beneficial trade can take place even when one nation is less efficient than another nation in the production of all commodities.

Accepted Answer

The law of comparative advantage explains that even if one nation is less efficient than another in the production of all goods, they can still benefit from trade by specializing in producing the goods for which they have a lower opportunity cost. This allows for both nations to trade with each other and benefit from the exchange.

Question 17

______________ states that the true cost of a commodity is the amount of a second commodity that must be given up to release just enough resources to produce one more unit of the first commodity:

Accepted Answer

The opportunity cost theory states that the true cost of a commodity is the amount of a second commodity that must be given up to release just enough resources to produce one more unit of the first commodity. This concept is based on the idea of opportunity cost, which is the cost of any activity measured in terms of the best alternative forgone.

Question 18

The ratio of one commodity price to the price of another commodity is called (the):

Accepted Answer

The ratio of one commodity price to another commodity price is known as the relative commodity price. Options A, C, and D are incorrect because they do not relate to the concept of the ratio of two commodity prices. Absolute advantage refers to one country's ability to produce a product more efficiently than another country, constant opportunity costs mean the cost remains the same for each additional product produced, and increasing opportunity costs refer to the fact that as the production level increases, the opportunity cost of producing each additional unit rises.

Question 19

The increase in consumption in each nation resulting from specialization in production and trading is referred to as:

Accepted Answer

The increase in consumption resulting from specialization in production and trading is known as gains from trade. This refers to the benefits nations can experience when they specialize in producing goods or services in which they have a comparative advantage and then trading those goods or services with other nations. This increases overall production, lowers prices, and allows for a wider variety of goods and services to be available to consumers.

Question 20

Commodities exported and imported by each nation constitute the:

Accepted Answer

The commodities exported and imported by each nation constitute the pattern of trade, which refers to the typical flow of goods and services between countries.

Quiz 2: Comparative Advantage