Question 1

The producer who has the smaller opportunity cost of producing a good is said to have a comparative advantage in producing that good.

Accepted Answer

This is the basic principle of comparative advantage in economics. When a producer has a lower opportunity cost of producing a good, they can produce that good at a lower cost than their trading partner and thus have a comparative advantage in producing that good.

Question 2

One reason trade benefits both parties is that it allows each to specialise in what they do better.

Accepted Answer

By trading, countries can focus on producing the goods and services that they are most efficient at producing, allowing for greater efficiency and productivity overall. This leads to lower costs and increased economic growth for both parties.

Question 3

Suppose it takes Jean four hours to catch 10 fish and one hour to collect one kilogram of mushrooms.It takes Lee four hours to catch 10 fish and 30 minutes to collect 1 kg of mushrooms.Lee should specialise in catching fish and Jean should specialise in collecting mushrooms.

Accepted Answer

Lee has a comparative advantage in collecting mushrooms because he can collect them at a faster rate (1 kg per 30 minutes) compared to Jean (1 kg per hour), while both have the same rate of catching fish (10 fish per 4 hours). Therefore, Lee should specialize in collecting mushrooms, and Jean should specialize in catching fish for optimal efficiency based on comparative advantage.

Question 4

If trade is not possible, then each person's production possibility frontier is the same as each person's consumption possibility frontier.

Accepted Answer

If trade is not possible, then individuals can only consume what they produce themselves. This means that their production possibility frontier, which shows the maximum amount of goods that can be produced given available resources and technology, is also their consumption possibility frontier, which shows the combinations of goods that can be consumed with given resource and technology constraints. Thus, the two frontiers are the same.

Question 5

The producer who requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good.

Accepted Answer

Absolute advantage refers to the ability of a producer to produce a good using fewer resources or inputs than another producer. It is not dependent on the quantity of inputs used, but rather on the efficiency of the producer in utilizing those inputs. Therefore, the producer who requires a smaller quantity of inputs to produce a good does have an absolute advantage in producing that good.

Question 6

It takes Barbara four hours to make a pie and four hours to make a shirt.It takes Gary two hours to make a pie and five hours to make a shirt.Barbara should specialise in making shirts and Gary should specialise in making pies.Then they should trade.

Accepted Answer

Barbara has a comparative advantage in making shirts because she has the same opportunity cost for both tasks, while Gary has a lower opportunity cost for making pies. By specializing in their respective areas of comparative advantage, they can trade and both benefit.

Question 7

Jean grows rice at a higher cost than Lee.Suppose Lee catches fish at a higher cost than Jean.They should trade.

Accepted Answer

The answer of Jean grows rice at a higher cost...

Question 8

Trade is not based on absolute advantage; rather it is based on comparative advantage.

Accepted Answer

Trade theory, as proposed by David Ricardo, is based on comparative advantage - the idea that even if one country has an absolute advantage in producing all goods, both countries can still gain from trade if they specialize in producing and exporting the goods in which they have a comparative advantage and importing the goods in which they have a comparative disadvantage.

Question 9

Shaquille can score 32 points or produce 12 rebounds in one game.Karl can score three points or produce one rebound in one game.Shaquille has both an absolute and a comparative advantage in both scoring and rebounding.

Accepted Answer

While Shaquille has an absolute advantage in both scoring and rebounding due to his higher output in both categories, comparative advantage is determined by who has the lower opportunity cost in producing one good over the other. Without knowing their opportunity costs, we cannot definitively say Shaquille has a comparative advantage in both.

Question 10

A constant trade-off in the production of two goods implies that the production possibility frontier will be a curve rather than a straight line.

Accepted Answer

A constant trade-off in the production of two goods implies that the production possibility frontier (PPF) will be a straight line, indicating constant opportunity costs for producing one good over another.

Question 11

Robinson Crusoe can produce 20 coconuts or 10 palm leaves in one day.Friday can produce 25 coconuts or five palm leaves in one day.Both individuals will be made better off through trade if Robinson specialises in producing coconuts and Friday specialises in producing palm leaves.

Accepted Answer

Robinson Crusoe has a comparative advantage in producing palm leaves because he gives up fewer coconuts to produce each palm leaf compared to Friday (2 coconuts per palm leaf for Robinson vs. 5 coconuts per palm leaf for Friday). Friday has a comparative advantage in producing coconuts because he can produce more coconuts per day than Robinson. Therefore, for both to benefit from trade, Robinson should specialize in palm leaves and Friday in coconuts.

Question 12

Michael can score 30 points per basketball game and Scottie can score 22 points per game.Michael has an absolute advantage over Scottie in scoring.

Accepted Answer

Michael's scoring capability is greater than Scottie's, hence he has an absolute advantage in scoring.

Question 13

Suppose Aaron can build a table in three days and clean a house in one hour, while Jack can clean a house in three hours but it only takes him one day to build a table.Jack has an absolute advantage over Aaron.

Accepted Answer

Jack has an absolute advantage in building tables because he can do it faster (in one day compared to Aaron's three days), but Aaron has an absolute advantage in cleaning houses since he can do it in one hour compared to Jack's three hours. Absolute advantage refers to the ability of a party to produce a greater quantity of a good, product, or service than competitors, using the same amount of resources.

Question 14

People's motivation to trade comes from the goods or services they expect to get in return.

Accepted Answer

Trading involves an exchange of goods or services, and people are motivated to participate in trading because they expect to receive something they desire or need in return. This can be in the form of money, other goods, or services. Thus, the motivation to trade is based on the expectation of receiving something of value in exchange for what is being offered.

Question 15

Andy is the greatest ukulele player in the world, but he also has a job as a highly paid executive in a human resources firm.He should quit his job to play ukulele full time.

Accepted Answer

Whether Andy should quit his job to play the ukulele full time depends on various personal and professional factors, including his passion, financial security, career goals, and the stability of a music career, which cannot be universally determined as the correct course of action for everyone.

Question 16

For a country producing two goods, the opportunity cost of one good will be the inverse of the opportunity cost of the other good.

Accepted Answer

This is a basic principle of economics known as the law of comparative advantage. It states that countries should specialize in producing the goods for which they have the lowest opportunity cost and trade with other countries for goods that have a higher opportunity cost. Therefore, the opportunity cost of one good is inversely related to the opportunity cost of the other good.

Question 17

Rusty can edit two pages in one minute, and can type 80 words in one minute.Emily can edit one page in one minute and can type 100 words in one minute.Rusty has both an absolute and a comparative advantage in editing and Emily has both an absolute and a comparative advantage in typing.

Accepted Answer

Rusty has an absolute advantage in editing because he can edit two pages in one minute compared to Emily who can only edit one page in one minute. Similarly, Emily has an absolute advantage in typing because she can type 100 words in one minute compared to Rusty who can only type 80 words in one minute. Rusty also has a comparative advantage in editing because his opportunity cost of editing is lower than Emily's since he could edit 2 pages instead of typing 160 words in one minute, whereas Emily could only edit 1 page instead of typing 100 words in one minute. Similarly, Emily has a comparative advantage in typing because her opportunity cost of typing is lower than Rusty's since she could type 100 words instead of editing half a page in one minute, whereas Rusty could only type 80 words instead of editing one page in one minute.

Question 18

If one country can produce all goods more cheaply than another, there is no reason to trade.

Accepted Answer

Even if one country can produce all goods more cheaply than another, there are still benefits to trading. Both countries can specialize in producing the goods they are relatively more efficient at producing and then trade with each other to increase efficiency and overall output. This can lead to increased economic growth and higher standards of living for both countries.

Question 19

Two individuals or two nations can benefit from trade even if one country has an absolute advantage over the other in producing all goods.

Accepted Answer

This is because even if one country has an absolute advantage in producing all goods, they may still benefit from trading with another country in terms of specialization, increased efficiency, and access to a greater variety of goods. This is known as comparative advantage.

Question 20

Trade allows a country to pivot outwards its production possibilities frontier.

Accepted Answer

Trade allows a country to consume beyond its production possibilities frontier by specializing in the production of goods for which it has a comparative advantage and trading for others, but it does not shift the country's production possibilities frontier itself.

Quiz 3: Interdependence and the Gains From Trade