Question 1

An economy's production possibilities frontier is also its consumption possibilities frontier
A)under all circumstances.
B)under no circumstances.
C)when the economy is self-sufficient.
D)when the rate of tradeoff between the two goods being produced is constant.

Accepted Answer

The answer of An economy's production possibilities frontier is also...

Question 2

Tom produces baseball gloves and baseball bats. Steve also produces baseball gloves and baseball bats, but Tom is better at producing both goods. In this case, trade could
A)benefit both Steve and Tom.
B)benefit Steve, but not Tom.
C)benefit Tom, but not Steve.
D)benefit neither Steve nor Tom.

Accepted Answer

Trade could benefit both Steve and Tom because Tom is more efficient at producing both goods. If Tom specializes in producing baseball gloves and Steve specializes in producing baseball bats, they can each produce more of their specialized good compared to producing both goods. Then, they can trade with each other, and both end up with more of both goods than they would have had without trade. This is the concept of comparative advantage, where each person specializes in producing the good they are relatively better at, and then trades for the other good to achieve a better overall outcome.

Question 3

Abby bakes brownies and Liam grows flowers. In which of the following cases is it impossible for both Abby and Liam to benefit from trade?
A)Abby does not like flowers and Liam does not like brownies.
B)Abby is better than Liam at baking brownies and Liam is better than Abby at growing flowers.
C)Liam is better than Abby at baking brownies and at growing flowers.
D)Both Abby and Liam can benefit from trade in all of the above cases.

Accepted Answer

If Abby does not like flowers and Liam does not like brownies, then there is no way for them to benefit from trade since they would not value each other's goods.

Question 4

​Table 3-38 
-​Refer to Table 3-38. Iowa and Nebraska can both produce corn and soybeans, and can switch between the production of corn and soybeans at a constant rate. The table illustrates the amount of corn or soybeans each state can produce in one growing season. Using the information from the table, Iowa's opportunity cost of producing one bushel of corn is
A)​1.5 bushels of soybeans and Nebraska's is 2 bushels of soybeans.
B)​1.5 bushels of soybeans and Nebraska's is 0.5 bushels of soybeans.
C)​0.67 bushels of soybeans and Nebraska's is 2 bushels of soybeans.
D)​0.67 bushels of soybeans and Nebraska's is 0.5 bushels of soybeans.

Accepted Answer

The answer of ​Table 3-38 
-​Refer to Table 3-38. Iowa...

Question 5

​Table 3-38 
-​Refer to Table 3-38. Iowa and Nebraska can both produce corn and soybeans, and can switch between the production of corn and soybeans at a constant rate. The table illustrates the amount of corn or soybeans each state can produce in one growing season. From the table we know that Nebraska has a
A)​comparative advantage in the production of soybeans and Iowa has a comparative advantage in the production of corn.
B)​comparative advantage in the production of corn and Iowa has a comparative advantage in the production of soybeans.
C)​comparative advantage in both goods and Iowa has a comparative advantage in neither good.
D)​comparative advantage in neither good and Iowa has a comparative advantage in both goods.

Accepted Answer

The answer of ​Table 3-38 
-​Refer to Table 3-38. Iowa...

Question 6

A production possibilities frontier is bowed outward when
A)the more resources the economy uses to produce one good, the fewer resources it has available to produce the other good.
B)an economy is self-sufficient instead of interdependent and engaged in trade.
C)the rate of tradeoff between the two goods being produced is constant.
D)the rate of tradeoff between the two goods being produced depends on how much of each good is being produced.

Accepted Answer

The production possibilities frontier (PPF) is bowed outward when the opportunity cost of producing one good increases as more of it is produced, which means the rate of trade-off between the two goods depends on the quantities being produced. This reflects increasing opportunity costs.

Question 7

Consider two individuals - Marquis and Serena - each of whom would like to wear sweaters and eat tasty food. The gains from trade between Marquis and Serena are most obvious in which of the following cases?
A)Marquis is very good at knitting sweaters and at cooking tasty food, but Serena's skills in both of these activities are very poor.
B)Marquis and Serena both are very good at cooking tasty food, but neither has the necessary skills to knit a sweater.
C)Marquis's cooking and knitting skills are very poor, and Serena's cooking and knitting skills are also very poor.
D)Marquis's skills are such that he can produce only sweaters, and Serena's skills are such that she can produce only tasty food.

Accepted Answer

The answer of Consider two individuals - Marquis and Serena...

Question 8

​Table 3-38 
-​Refer to Table 3-38. Iowa and Nebraska can both produce corn and soybeans, and can switch between the production of corn and soybeans at a constant rate. The table illustrates the amount of corn or soybeans each state can produce in one growing season. Based upon the information in the table, we can determine that
A)​Iowa has an absolute advantage in corn and Nebraska has an absolute advantage in soybeans.
B)​Nebraska has an absolute advantage in corn and Iowa has an absolute advantage in soybeans.
C)​Iowa has an absolute advantage in both corn and soybeans.
D)​Nebraska has an absolute advantage in both corn and soybeans.

Accepted Answer

The answer of ​Table 3-38 
-​Refer to Table 3-38. Iowa...

Question 9

Table 3-37  ​
-Refer to Table 3-37. Sarah and Charles are both potters and each can switch between the production of vases and mugs at a constant rate. The table shows the total number of vases or decorative mugs that each person can produce in a six-hour session of producing pottery. Sarah and Charles could benefit from trading with each other if they traded at a price of
A)​5 vases per mug
B)​0.5 mugs per vase
C)​3 mugs per vase
D)​1.5 vases per mug

Accepted Answer

The answer of Table 3-37  ​
-Refer to Table 3-37....

Question 10

​Table 3-38 
-​Refer to Table 3-38. Iowa and Nebraska can both produce corn and soybeans, and can switch between the production of corn and soybeans at a constant rate. The table illustrates the amount of corn and soybeans each state can produce in one growing season. From this table, we can conclude that Iowa should specialize in the production of
A)​both goods and Nebraska should specialize in the production of neither good.
B)​neither good and Iowa should specialize in the production of both goods.
C)​corn and Nebraska should specialize in the production of soybeans.
D)​soybeans and Nebraska should specialize in the production of corn.

Accepted Answer

Iowa has a comparative advantage in producing corn (since it can produce more corn than soybeans) and Nebraska has a comparative advantage in producing soybeans (since it can produce more soybeans than corn). Therefore, if both states specialize in the production of the good they have a comparative advantage in, they can achieve a higher overall level of production and trade with each other to obtain both goods at a lower opportunity cost.

Question 11

Consider two individuals - Howard and Mai - each of whom would like to wear sweaters and eat tasty food. The gains from trade between Howard and Mai are least obvious in which of the following cases?
A)Howard is very good at knitting sweaters and at cooking tasty food, but Mai's skills in both of these activities are very poor.
B)Howard is very good at knitting sweaters and at cooking tasty food; Mai is very good at knitting sweaters, but she knows nothing about cooking tasty food.
C)Howard's skills in knitting sweaters are fairly good, but his skills in cooking tasty food are fairly bad; Mai's skills in knitting sweaters are fairly bad, but her skills in cooking tasty food are fairly good.
D)Howard's skills are such that he can produce only sweaters, and Mai's skills are such that she can produce only tasty food.

Accepted Answer

In all the other scenarios, there is some level of comparative advantage that can be exploited through trade. However, in scenario D, there is no chance for gains from trade as each person can only produce one of the desired goods.

Question 12

A production possibilities frontier is a straight line when
A)the more resources the economy uses to produce one good, the fewer resources it has available to produce the other good.
B)an economy is interdependent and engaged in trade instead of self-sufficient.
C)the rate of tradeoff between the two goods being produced is constant.
D)the rate of tradeoff between the two goods being produced depends on how much of each good is being produced.

Accepted Answer

A straight line PPF means that the resources are perfectly adaptable to produce both goods at a constant rate of tradeoff. This is why the opportunity cost of producing one good in terms of the other remains constant.

Question 13

When can two countries gain from trading two goods?
A)when the first country can only produce the first good and the second country can only produce the second good
B)when the first country can produce both goods, but can only produce the second good at great cost, and the second country can produce both goods, but can only produce the first good at great cost
C)when the first country is better at producing both goods and the second country is worse at producing both goods
D)Two countries could gain from trading two goods under all of the above conditions.

Accepted Answer

Two countries can gain from trading two goods under all of the above conditions. In option A, both countries have different comparative advantages over the two goods. In option B, the countries have different opportunity costs associated with producing the two goods. In option C, both countries have different absolute advantages over the two goods. Therefore, options A, B, and C all represent scenarios in which gains can be achieved through trade.

Question 14

​Table 3-38 
-​Refer to Table 3-38. Iowa and Nebraska can both produce corn and soybeans, and can switch between the production of corn and soybeans at a constant rate. The table illustrates the amount of corn or soybeans each state can produce in one growing season. From this table, we know that Nebraska has an absolute advantage in the production of
A)​corn and a comparative advantage in the production of soybean.
B)​both goods and a comparative advantage in the production of soybeans.
C)​corn and a comparative advantage in the production of corn.
D)​both goods and a comparative advantage in the production of corn.

Accepted Answer

The answer of ​Table 3-38 
-​Refer to Table 3-38. Iowa...

Question 15

​Table 3-38 
-​Refer to Table 3-38. Iowa and Nebraska can both produce corn and soybeans, and can switch between the production of corn and soybeans at a constant rate. The table illustrates the amount of corn or soybeans each state can produce in one growing season. From the table we know that Iowa has a
A)​comparative advantage in the production of soybeans and Nebraska has a comparative advantage in the production of corn.
B)​comparative advantage in the production of corn and Nebraska has a comparative advantage in the production of soybeans.
C)​comparative advantage in both goods and Nebraska has a comparative advantage in neither good.
D)​comparative advantage in neither good and Nebraska has a comparative advantage in both goods.

Accepted Answer

Iowa has a lower opportunity cost of producing soybeans compared to corn (1/2 vs. 1), while Nebraska has a lower opportunity cost of producing corn compared to soybeans (3/4 vs. 4/5). Therefore, Iowa has a comparative advantage in soybean production and Nebraska has a comparative advantage in corn production.

Question 16

​Table 3-38 
-​Refer to Table 3-38. Iowa and Nebraska can both produce corn and soybeans, and can switch between the production of corn and soybeans at a constant rate. The table illustrates the amount of corn or soybeans each state can produce in one growing season. At which of the following prices would both Iowa and Nebraska be able to gain from trade with each other?
A)​1 bushel of soybeans for 1.7 bushels of corn.
B)​2.5 bushels of soybeans for 1 bushel of corn,
C)​3 bushels of corn for 1 bushel of soybeans.
D)​1.8 bushels of soybeans for 1 bushel of corn.

Accepted Answer

The opportunity cost of producing one bushel of soybeans in Iowa is 1.5 bushels of corn (6/4), while the opportunity cost of producing one bushel of soybeans in Nebraska is 1.8 bushels of corn (9/5). Thus, Iowa has a comparative advantage in producing soybeans (lower opportunity cost) while Nebraska has a comparative advantage in producing corn (lower opportunity cost). To find the price at which both states can gain from trade, we need to look for a price that lies between the two opportunity costs. 1.8 bushels of soybeans for 1 bushel of corn satisfies this condition, as it is higher than Iowa's opportunity cost but lower than Nebraska's. Therefore, both Iowa and Nebraska can gain from trade at this price.

Question 17

The production possibilities frontier illustrates
A)the combinations of output that an economy should produce.
B)the combinations of output that an economy should consume.
C)the combinations of output that an economy can produce.
D)All of the above are correct.

Accepted Answer

The production possibilities frontier shows the different combinations of goods and services that an economy can produce given its available resources and technology. It does not address what an economy should produce or consume, but rather what it is capable of producing. Therefore, choice C is the best answer.

Question 18

Which of the following is not a reason people choose to depend on others for goods and services?
A)to improve their lives
B)to allow them to enjoy a greater variety of goods and services
C)to consume more of each good without working any more hours
D)to allow people to produce outside their production possibilities frontiers

Accepted Answer

Depending on others for goods and services can allow people to consume more than they could produce on their own, but it does not allow them to produce outside their production possibilities frontiers. This is determined by their available resources and technology, not by the choice to rely on others.

Question 19

Table 3-37  ​
-​Refer to Table 3-37. Sarah and Charles are both potters and each can switch between the production of vases and mugs at a constant rate. The table shows the total number of vases or decorative mugs that each person can produce in a six-hour session of producing pottery. Suppose that Sarah and Charles produce for two 6-hour sessions and they split this time equally between the production of vases and mugs. If they then produce for two 6-hour sessions and produce only the good that each person has the comparative advantage for, then total production of
A)​vases would rise by 20 and total production of mugs would rise by 32.
B)​vases would rise by 2 and total production of mugs would rise by 27.
C)​vases would rise by 2 and total production of mugs would rise by 7.
D)​vases would rise by 18 and total production of mugs would rise by 25.

Accepted Answer

The answer of Table 3-37  ​
-​Refer to Table 3-37....

Question 20

Olivia bakes cakes and Andrew grows corn. Olivia and Andrew both like to eat cake and eat corn. In which of the following cases is it impossible for both Olivia and Andrew to benefit from trade?
A)Olivia cannot grow corn and Andrew cannot bake cakes.
B)Olivia is better than Andrew at baking cakes and Andrew is better than Olivia at growing corn.
C)Olivia is better than Andrew at baking cakes and at growing corn.
D)Both Olivia and Andrew can benefit from trade in all of the above cases.

Accepted Answer

The answer of Olivia bakes cakes and Andrew grows corn....

Quiz 3: Interdependence and the Gains From Trade

An economy's production possibilities frontier is also its consumption possibilities frontier

Tom produces baseball gloves and baseball bats. Steve also produces baseball gloves and baseball bats, but Tom is better at producing both goods. In this case, trade could

Abby bakes brownies and Liam grows flowers. In which of the following cases is it impossible for both Abby and Liam to benefit from trade?

A production possibilities frontier is bowed outward when

Consider two individuals - Marquis and Serena - each of whom would like to wear sweaters and eat tasty food. The gains from trade between Marquis and Serena are most obvious in which of the following cases?

Consider two individuals - Howard and Mai - each of whom would like to wear sweaters and eat tasty food. The gains from trade between Howard and Mai are least obvious in which of the following cases?

A production possibilities frontier is a straight line when

When can two countries gain from trading two goods?

The production possibilities frontier illustrates

Which of the following is not a reason people choose to depend on others for goods and services?

Olivia bakes cakes and Andrew grows corn. Olivia and Andrew both like to eat cake and eat corn. In which of the following cases is it impossible for both Olivia and Andrew to benefit from trade?