Question 1

An economy produces only food and shelter. There are two individuals in the economy: Bill and Mary. Mary's opportunity cost of producing 1 unit of shelter is 2 units of food. Bill's opportunity cost of producing 1 unit of shelter is 4 units of food.
A) Mary has a comparative advantage over Bill in the production of food.
B) Mary has a comparative advantage over Bill in the production of shelter.
C) Bill has a comparative advantage over Mary in the production of shelter.
D) Bill has an absolute advantage over Mary in the production of shelter.

Accepted Answer

Mary has a lower opportunity cost of producing shelter, meaning she gives up less food production to produce shelter than Bill does. Therefore, Mary has a comparative advantage over Bill in the production of shelter.

Question 2

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

Accepted Answer

When a nation has a comparative advantage in the production of a particular good, it means that they can produce that good more efficiently (and with lower opportunity cost) than other nations. This allows them to specialize in the production of that good and trade with other nations for goods they are less efficient at producing. This leads to gains from trade for both parties involved.

Question 3

The kitchen manager at an Italian restaurant is deciding what assignments he should give to his two cooks, John and David. John can make 25 pizzas or 40 servings of pasta per hour and David can make 20 pizzas or 30 servings of pasta. Which of the following should be the manager's choice?
A) David will make pizza because he has comparative advantage in making pizza.
B) Fire David because he is not as productive as John. John will do both jobs.
C) John and David both will spend half their time making pizza and half their time making pasta because each has a comparative advantage in making pizza.
D) John will make pizza because he has comparative advantage in making pizza.

Accepted Answer

The answer of The kitchen manager at an Italian restaurant...

Question 4

A person has a comparative advantage in producing a particular good if that person
A) has less desire to consume that good than anyone else has.
B) can produce it at lower opportunity cost than anyone else can.
C) has more human capital related to that good than anyone else has.
D) has higher productivity in producing it than anyone else has.

Accepted Answer

Comparative advantage is determined by comparing opportunity cost. If a person can produce a particular good at a lower opportunity cost than anyone else, then that person has a comparative advantage in producing that good.

Question 5

In an eight- hour day, Andy can produce either 24 loaves of bread or 8 pounds of butter. In an eight- hour day, Bob can produce either 8 loaves of bread or 8 pounds of butter. Andy has a comparative advantage in the production of
A) butter, while Bob has a comparative advantage in the production of bread.
B) bread and neither has a comparative advantage in the production of butter.
C) bread, while Bob has a comparative advantage in the production of butter.
D) both bread and butter.

Accepted Answer

To determine comparative advantage, we need to look at the opportunity cost of each person's production. In other words, we need to see what is given up in order to produce one unit of bread or butter.

For Andy: 
- To produce 1 loaf of bread, Andy gives up 1/3 pound of butter (24 loaves of bread divided by 8 pounds of butter). 
- To produce 1 pound of butter, Andy gives up 3 loaves of bread (8 pounds of butter divided by 24 loaves of bread).

For Bob: 
- To produce 1 loaf of bread, Bob gives up 1 pound of butter (8 loaves of bread divided by 8 pounds of butter). 
- To produce 1 pound of butter, Bob gives up 1 loaf of bread (8 pounds of butter divided by 8 loaves of bread).

From this analysis, we can see that Andy has a lower opportunity cost for producing bread, since he only gives up 1/3 pound of butter for each loaf of bread, compared to Bob who gives up 1 pound of butter for each loaf of bread. Therefore, Andy has a comparative advantage in producing bread. On the other hand, Bob has a lower opportunity cost for producing butter, since he only gives up 1 loaf of bread for each pound of butter, compared to Andy who gives up 3 loaves of bread for each pound of butter. Therefore, Bob has a comparative advantage in producing butter.

Question 6

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 gain because each can consume a combination of goods that is outside her/his production possibility frontier
B) one of them will gain and the other will lose
C) each will produce a combination of goods that is within her/his production possibility frontier
D) they will lose because they are no longer able to produce and consume both goods.

Accepted Answer

When Tom and Di specialize in producing the goods in which they have a comparative advantage and exchange goods, each will gain because they can consume a combination of goods that is outside their individual production possibility frontier. This is because they are able to produce and exchange goods more efficiently than they would be able to produce both goods individually.

Question 7

Which of the following describes comparative advantage?
A) Firm A can produce a good at a cost of $3 and Firm B can produce the good at a cost of $4.
B) Jane can type 50 words per minute and Joe can type 60 words per minute.
C) To produce a bushel of wheat Farmer John must give up 2 bushels of corn whereas Farmer Ben must give up 3 bushels of corn.
D) Company A can produce 4 boxes of cereal in a day whereas Company B can produce 5 boxes of cereal in a day.

Accepted Answer

Comparative advantage refers to the ability of a country, individual, or firm to produce a particular good or service at a lower opportunity cost than other producers. In this scenario, Farmer John has a lower opportunity cost of producing wheat because he only has to give up 2 bushels of corn to produce one bushel of wheat, whereas Farmer Ben has to give up 3 bushels of corn to produce one bushel of wheat. Therefore, Farmer John has a comparative advantage in producing wheat, and Farmer Ben has a comparative advantage in producing corn.

Question 8

Big Lobster sells lobster and fish, and so too does H Salt. If Big Lobster's opportunity cost of preparing lobster exceeds H Salt's opportunity cost, then all the following are true EXCEPT
)
A) they will both gain if Big Lobster sells fish and H Salt sells lobster.
B) Big Lobster has a comparative advantage in lobster.
C) H Salt has a comparative advantage in lobster.
D) H Salt doesn't have a comparative advantage in cooking fish.

Accepted Answer

Big Lobster having a higher opportunity cost for lobster means it does not have a comparative advantage in lobster; H Salt does.

Question 9

Individuals A and B both produce good X. A has a comparative advantage in the production of good X if A
A) can produce X using newer technology than can B.
B) has a lower opportunity cost of producing good X than has B.
C) has a lower opportunity cost of producing good X than of producing good Y.
D) can produce more units of X in a given time period than can B.

Accepted Answer

Comparative advantage is based on opportunity cost, which is the cost of producing one good in terms of producing another. If A has a lower opportunity cost of producing good X than B, then A has a comparative advantage in the production of good X. This means that A gives up less of the production of another good when producing good X compared to B. Therefore, A can produce both goods more efficiently than B, making trade mutually beneficial.

Question 10

A country possesses a comparative advantage in the production of a good if
A) it possesses an absolute advantage in the production of this good.
B) the opportunity cost in terms of forgone output of alternative goods is lower for this country than it is for its trading partners.
C) it is able to produce more of this good per hour than can any other country.
D) all of the above

Accepted Answer

Comparative advantage is based on opportunity cost. A country has a comparative advantage in producing a good if the opportunity cost in terms of producing alternative goods is lower for this country than its trading partners. This means that the country can produce this good more efficiently and/or at a lower cost than its trading partners. It is not necessary for the country to have an absolute advantage or to produce more of the good per hour than any other country.

Question 11

Which of the following is a true statement?
A) Comparative advantage explains trade within nations, but not among nations.
B) Comparative advantage explains trade among nations, but not within nations.
C) Comparative advantage has nothing to do with trade among nations; it only is concerned with specialization within a firm.
D) Comparative advantage explains trade within nations and among nations.

Accepted Answer

Comparative advantage explains trade both within nations and among nations. It helps countries to specialize in producing the goods and services they are most efficient at producing, and trade with other countries to obtain what they need.

Question 12

Comparative advantage is
A) the ability to perform an activity at a zero opportunity cost.
B) identical to absolute advantage.
C) the ability to perform an activity at a higher opportunity cost than anyone else.
D) the ability to perform an activity at a lower opportunity cost than anyone else.

Accepted Answer

Comparative advantage refers to the ability to produce a good or service at a lower opportunity cost than someone else. This means that even if one country or individual is better at producing all goods, there can still be a mutually beneficial trade if they focus on what they can produce at a lower opportunity cost than others. Therefore, choice D is the correct answer as it describes the concept of comparative advantage.

Question 13

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 marginal benefit from tomatoes is greater than Di's
C) his opportunity cost of tomatoes is less than Di's opportunity cost of tomatoes
D) his opportunity cost of tomatoes is less than his opportunity cost of turnips

Accepted Answer

Comparative advantage is determined by opportunity cost. Tom has a comparative advantage in growing tomatoes if his opportunity cost of tomatoes (in terms of the amount of turnips he must give up to produce tomatoes) is less than Di's opportunity cost of tomatoes. Option C correctly explains this concept.

Question 14

A country that has an absolute advantage in producing all goods will usually .
A) produce all goods at lowest opportunity cost
B) not gain from specialization and trade
C) have a comparative advantage in all goods
D) have a comparative advantage in some goods but not all

Accepted Answer

The answer of A country that has an absolute advantage...

Question 15

Country A can produce 1 cello by giving up the production of 5 guitars. Country B can produce 1 guitar by giving up the production of 4 cellos. In which good does country A have a comparative advantage?
A) cellos
B) guitars
C) both goods
D) neither good

Accepted Answer

The answer of Country A can produce 1 cello by...

Question 16

An increase in the nation's capital stock will
A) shift the PPF outward.
B) cause a movement along the PPF down and to the right.
C) cause a movement along the PPF up and to the left.
D) move the nation from producing within the PPF to producing at a point closer to the PPF.

Accepted Answer

An increase in the nation's capital stock will shift the PPF outward as it allows for more efficient and effective production of goods and services.

Question 17

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

Accepted Answer

A country that has a comparative advantage in producing capital goods will specialize in producing capital goods and trade with a country that has a comparative advantage in consumption goods. This allows both countries to focus on producing the goods they are relatively better at producing and to reap the benefits of trade. By specializing, they can achieve a higher level of efficiency and ultimately increase their total output.

Question 18

A person has a comparative advantage in an activity if that person can
A) perform the activity at a lower opportunity cost than anyone else.
B) perform that activity at a higher opportunity cost than anyone else.
C) produce fewer goods in a given amount of time than another person.
D) produce more goods in a given amount of time than another person.

Accepted Answer

Comparative advantage is based on opportunity cost, which is the value of the next best alternative forgone. Therefore, a person has a comparative advantage in an activity if they can perform that activity at a lower opportunity cost than anyone else. This means that they give up less of other goods or activities in order to produce a unit of the good in question, making them more efficient and productive in that particular activity.

Question 19

Because of the existence of comparative advantage, the total output of goods is higher when each producer
A) produces several different goods.
B) makes both intermediate and final goods.
C) produces at the midpoint of its PPF.
D) specializes in the production of a particular good.

Accepted Answer

The concept of comparative advantage suggests that each producer should focus on producing the good or service that they can produce most efficiently compared to others. By specializing in the production of a particular good, the producer can achieve higher levels of efficiency and productivity. As a result, the total output of goods increases when each producer specializes in their respective areas of comparative advantage.

Question 20

A person has a comparative advantage in an activity whenever he or she
A) can do everything better than anyone else.
B) can do the activity in less time than anyone else.
C) can perform the activity at a lower opportunity cost than can anyone else.
D) has an absolute advantage in the activity.

Accepted Answer

Comparative advantage is the ability of a person, firm, or country to produce a particular good or service at a lower opportunity cost than another person, firm, or country. This means that the individual can produce a good or service at a lower cost (in terms of resources and time) than others. It is not necessary for the individual to be the best or to have an absolute advantage in the activity. So, option C is the correct answer.

Quiz 2: The Economic Problem

An economy produces only food and shelter. There are two individuals in the economy: Bill and Mary. Mary's opportunity cost of producing 1 unit of shelter is 2 units of food. Bill's opportunity cost of producing 1 unit of shelter is 4 units of food.

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

The kitchen manager at an Italian restaurant is deciding what assignments he should give to his two cooks, John and David. John can make 25 pizzas or 40 servings of pasta per hour and David can make 20 pizzas or 30 servings of pasta. Which of the following should be the manager's choice?

A person has a comparative advantage in producing a particular good if that person

In an eight- hour day, Andy can produce either 24 loaves of bread or 8 pounds of butter. In an eight- hour day, Bob can produce either 8 loaves of bread or 8 pounds of butter. Andy has a comparative advantage in the production of

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

Which of the following describes comparative advantage?

Big Lobster sells lobster and fish, and so too does H Salt. If Big Lobster's opportunity cost of preparing lobster exceeds H Salt's opportunity cost, then all the following are true EXCEPT )

Individuals A and B both produce good X. A has a comparative advantage in the production of good X if A

A country possesses a comparative advantage in the production of a good if

Which of the following is a true statement?

Comparative advantage is

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

A country that has an absolute advantage in producing all goods will usually .

Country A can produce 1 cello by giving up the production of 5 guitars. Country B can produce 1 guitar by giving up the production of 4 cellos. In which good does country A have a comparative advantage?

An increase in the nation's capital stock will

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

A person has a comparative advantage in an activity if that person can

Because of the existence of comparative advantage, the total output of goods is higher when each producer

A person has a comparative advantage in an activity whenever he or she