Question 1

Carlos is an executive of a major corporation. Boris is a baker. Carlos earns a salary ten times as large as the salary Boris earns, and Carlos has a much larger oven for baking break. Carlos can make a loaf of bread that tastes better than Boris's bread but Boris can bake faster.

Accepted Answer

Carlos has an absolute advantage in making bread because he has a larger oven and can make bread that tastes better. However, he does not have a comparative advantage over Boris because Boris can bake fast, meaning that he can produce more bread per unit time compared to Carlos. Therefore, Boris has a lower opportunity cost of producing bread, which gives him a comparative advantage in baking.

Question 2

Specialization can occur because

Accepted Answer

Specialization occurs because workers have varying skills, which allows them to focus on specific tasks where they have a comparative advantage. This increases efficiency and productivity, leading to economic growth. Governments may encourage or facilitate specialization through policies, but they do not necessarily cause it. Absolute advantage is a related concept, but it only occurs if one worker can produce more of a good than another worker, which is not always the case. Managers and laborers sharing job tasks would reduce specialization, as workers would need to be trained in multiple areas rather than focusing on one specific skill.

Question 3

Tiger Woods, a professional golfer, pays a garage mechanic to change the motor oil of his car even though he can do the work himself. Which of the following best explains why Tiger Woods does NOT change the oil himself?

Accepted Answer

The concept of opportunity cost implies that individuals must choose between alternative uses of their time and resources. Tiger Woods may have the skills to change the oil himself, but the opportunity cost of doing so is high. As a professional golfer, his time is valuable, and it is more efficient for him to spend his time earning money on the golf course rather than changing his car's oil. On the other hand, the garage mechanic likely has a lower opportunity cost for changing oil, as it is part of his job and he can earn a living doing so. Therefore, it makes more sense for Tiger Woods to pay the mechanic to change his oil, rather than doing it himself. This is why option D is the correct answer.

Question 4

Comparative advantage implies choosing the activity that

Accepted Answer

According to the principle of comparative advantage, a country should specialize in the production of the good or service for which it has the lowest opportunity cost. Therefore, Choice C, which states that the activity with the lowest opportunity cost should be chosen, is the best answer. The other choices are incorrect because having a high opportunity cost would suggest that a different activity should be chosen, being inside the production possibilities frontier is not necessary for comparative advantage, and specialization is often required in order to achieve comparative advantage.

Question 5

If individual X has comparative advantage in painting and individual Y has comparative advantage in carpentry, then

Accepted Answer

The concept of comparative advantage suggests that individuals should specialize in the activity they have the lowest opportunity cost to engage in. In this case, individual X has a lower opportunity cost (in terms of carpentry) to paint than individual Y does. Therefore, individual X should specialize in painting, and individual Y should specialize in carpentry. This will result in both individuals producing more efficiently and effectively than if they tried to split their time between both activities.

Question 6

If a country's production possibilities curve gets more bowed out over time, it is an indication that

Accepted Answer

When a production possibilities curve becomes more bowed out, it indicates that resources have become more highly specialized, making the trade-offs between producing different goods more pronounced.

Question 7

Suppose that at a bicycle shop, instead of having each worker assemble an entire bicycle themselves, one person welds the frames, another person works on the braking system, another person works on the tires, and another person works on the gears. This best demonstrates the concept of

Accepted Answer

This is an example of division of labor, where each worker specializes in a specific task to increase efficiency and productivity in the production process.

Question 8

A person has a comparative advantage in an activity whenever she

Accepted Answer

Comparative advantage is the ability to produce a good or service at a lower opportunity cost than another producer. Therefore, choice (B) is the best answer as it correctly defines comparative advantage. Absolute advantage (A) and efficiency (C) are related concepts but do not necessarily describe a comparative advantage. Choice (D) is incorrect as it describes a scenario that is impossible due to differences in skills and abilities among individuals.

Question 9

The division of labor refers to

Accepted Answer

The division of labor refers to the allocation of specific tasks and responsibilities to workers based on their skills and specialties. This allows for increased efficiency and productivity in completing tasks.

Question 10

Division of labor refers to

Accepted Answer

Division of labor refers to the practice of assigning different workers to different tasks based on their skills and abilities. This allows for greater efficiency and productivity, as workers can specialize and become experts in their particular task.

Question 11

Division of labor increases the output of society by

Accepted Answer

Division of labor allows resources to specialize in the tasks for which they have a comparative advantage. This means that each resource focuses on doing what they are best at, which allows for more efficient production and higher overall output for society. This leads to economic growth and development. Choices A, B, and C are not correct because division of labor does not eliminate scarcity, reduce the number of choices people have to make, or necessarily increase happiness in performing work.

Question 12

Why do people specialize?

Accepted Answer

Specialization usually increases productivity because people can focus on developing expertise in a specific area, leading to more efficient and effective work.

Question 13

The ability to produce a good at a lower opportunity cost than others is known as

Accepted Answer

Comparative advantage is the ability to produce a good at a lower opportunity cost. This means that even if one country or individual can produce a good more efficiently (with lower absolute cost), it may still make sense for them to specialize in producing something else where they have a comparative advantage (lower opportunity cost). By specializing in producing what they have a comparative advantage in and trading with others, everyone can enjoy the benefits of increased efficiency and productivity.

Question 14

Specialization and the division of labor typically result in

Accepted Answer

Specialization and division of labor enable workers to focus on specific tasks, leading to increased efficiency and productivity. This in turn results in increased output.

Question 15

Comparative advantage is always a(n) ________ concept.

Accepted Answer

Comparative advantage is always a relative concept as it involves comparing the relative efficiencies of different producers in the production of different goods and services. It is not an absolute or monetary concept, as it does not involve fixed values or prices.

Question 16

Absolute advantage is

Accepted Answer

Absolute advantage refers to the ability of a party to produce a good or service using fewer inputs than another party, making it more efficient in the production of that good or service.

Question 17

Which is the best example of specialization?

Accepted Answer

Specialization refers to focusing on a narrow area of expertise. In this case, the high school math teacher who teaches only calculus is the best example of specialization, as they are specializing in one specific area of math instruction.

Question 18

The division of productive activities among persons and regions so that no one individual or area is totally self-sufficient is known as

Accepted Answer

The division of productive activities among persons and regions so that no one individual or area is totally self-sufficient refers to the concept of specialization. Specialization is when individuals or regions focus on producing only a few goods or services, rather than trying to produce everything they need on their own. This allows for a more efficient use of resources and promotes trade and interdependence among different regions and individuals.

Question 19

If you can make $25,000 a year teaching, $20,000 a year writing computer programs, $30,000 a year driving a cab, and $40,000 a year as an actor or actress. You have a comparative advantage in

Accepted Answer

Comparative advantage means being able to produce a good or service at a lower opportunity cost than someone else. In this case, if the individual has a comparative advantage in being an actor or actress, it means they can earn $40,000 in that job while having a lower opportunity cost compared to their other options. Therefore, they should choose to pursue acting.

Question 20

Generally, specialization leads to

Accepted Answer

Specialization allows individuals to focus on a specific task or skill, which can increase productivity through the development of expertise and efficiency. This can lead to cost reductions and improved outcomes. However, specialization may also lead to a decrease in overall skill levels, as individuals may become less versatile in their abilities. Self-reliance may or may not be affected, depending on the specific nature of the specialization.

Quiz 2: Scarcity and the World of Trade-Offs