Question 1

The difference between production possibilities frontiers that are bowed out and those that are straight lines is that
A)bowed-out production possibilities frontiers apply to economies that face tradeoffs, whereas straight-line production possibilities frontiers apply to economies that do not face tradeoffs.
B)bowed-out production possibilities frontiers apply to economies in which resources are not specialized, whereas straight-line production possibilities frontiers apply to economies in which resources are specialized.
C)bowed-out production possibilities frontiers illustrate increasing opportunity cost, whereas straight-line production possibilities frontiers illustrate constant opportunity cost.
D)straight-line production possibilities frontiers illustrate real-world conditions, whereas bowed-out production possibilities frontiers illustrate more simplistic assumptions.

Accepted Answer

Bowed-out production possibilities frontiers illustrate increasing opportunity cost, meaning that as an economy produces more of one good, the opportunity cost of producing additional units of that good increases, requiring larger and larger sacrifices of the other good. In contrast, straight-line production possibilities frontiers illustrate constant opportunity cost, meaning that the opportunity cost of producing additional units of either good remains the same.

Question 2

Table 3-1
 
-Refer to Table 3-1.The opportunity cost of 1 pound of potatoes for the rancher is
A)5 hours of labor.
B)4 hours of labor.
C)5/4 pounds of meat.
D)4/5 pound of meat.

Accepted Answer

The opportunity cost of 1 pound of potatoes for the rancher is 5/4 pounds of meat. This is because the rancher could have used the 5 hours of labor to produce 5/4 pounds of meat instead of 1 pound of potatoes.

Question 3

Consider a shoemaker and a vegetable farmer.Potentially,trade could benefit both individuals if
A)the shoemaker can produce only shoes and the vegetable farmer can produce only vegetables.
B)the shoemaker is capable of growing vegetables, but he is not very good at it.
C)the vegetable farmer is better at growing vegetables and better at making shoes than the shoemaker.
D)All of the above are correct.

Accepted Answer

Trade can benefit both individuals in all scenarios: A) specialization allows each to focus on what they do best, B) even if the shoemaker can grow vegetables, trade is beneficial if he is less efficient at it, and C) trade is beneficial if the farmer has an absolute advantage in both but a comparative advantage in vegetables.

Question 4

Which of the following statements is not correct?
A)Trade allows for specialization.
B)Trade has the potential to benefit all nations.
C)Trade allows nations to consume outside of their production possibilities curves.
D)Absolute advantage is the driving force of specialization.

Accepted Answer

Comparative advantage, not absolute advantage, is the driving force of specialization.

Question 5

Without trade,
A)a country is better off because it will have to learn to be self-sufficient without trade.
B)a country's production possibilities frontier is also its consumption possibilities frontier.
C)a country can still benefit from international specialization.
D)interdependence is more extensive than it would be with trade.

Accepted Answer

Without trade, a country's production possibilities frontier indicates the maximum level of production it can achieve, which is also the maximum level of consumption it can achieve since it cannot obtain goods from other countries.

Question 6

A production possibilities frontier will be a straight line if
A)increasing the production of one good by x units entails no opportunity cost in terms of the other good.
B)increasing the production of one good by x units entails a constant opportunity cost in terms of the other good.
C)the economy is producing efficiently.
D)the economy is engaged in trade with at least one other economy.

Accepted Answer

A straight line PPF indicates constant opportunity cost when producing more of one good means sacrificing a constant amount of the other good. Choice A would result in a bowed-out PPF, while choices C and D are not directly related to the shape of the PPF.

Question 7

When an economist points out that you and millions of other people are interdependent,he or she is referring to the fact that we all
A)rely upon government to provide us with the basic necessities of life.
B)rely upon one another for the goods and services we all consume.
C)have similar tastes and abilities.
D)are concerned about one another's well-being.

Accepted Answer

Interdependence means that we rely on each other for the goods and services we consume. No individual can produce everything they need, so we rely on other individuals and businesses to provide those goods and services to us. This creates a network of interdependence where we are all connected and dependent on each other's actions and decisions.

Question 8

Table 3-1
 
-Refer to Table 3-1.The opportunity cost of 1 pound of meat for the farmer is
A)1/4 hour of labor.
B)4 hours of labor.
C)4 pounds of potatoes.
D)1/4 pound of potatoes.

Accepted Answer

According to the table, the farmer would have to give up producing 4 pounds of potatoes to produce 1 pound of meat. Therefore, the opportunity cost of 1 pound of meat for the farmer is 4 pounds of potatoes.

Question 9

Shannon bakes cookies and Justin grows vegetables.In which of the following cases is it impossible for both Shannon and Justin to benefit from trade?
A)Shannon does not like vegetables and Justin does not like cookies.
B)Shannon is better than Justin at baking cookies and Justin is better than Shannon at growing vegetables.
C)Justin is better than Shannon at baking cookies and at growing vegetables.
D)All of the above are correct.

Accepted Answer

If neither Shannon nor Justin likes the other's goods, they have no incentive to trade, making it impossible for both to benefit from trade.

Question 10

A country's consumption possibilities frontier can be outside its production possibilities frontier if
A)the country's technology is superior to the technologies of other countries.
B)the citizens of the country have a greater desire to consume goods and services than do the citizens of other countries.
C)the country engages in trade.
D)All of the above are correct.

Accepted Answer

The country's consumption possibilities frontier can be outside its production possibilities frontier if the country engages in trade. This is because trade allows a country to specialize in producing the goods and services in which they have a comparative advantage and then import the goods and services they cannot produce efficiently. As a result, the country can consume more goods and services than it could produce on its own. Superior technology and a greater desire to consume goods and services than other countries are not sufficient reasons on their own to have a consumption possibilities frontier outside of the production possibilities frontier.

Question 11

The production possibilities frontier is a downward-sloping straight line when
A)it is possible to switch between one good and the other good at a constant rate.
B)there is no tradeoff involved in switching between one good and the other good.
C)the same amount of time is required to produce a unit of one good as is required to produce a unit of the other good.
D)the person for whom the frontier is drawn wishes to consume equal amounts of the two goods.

Accepted Answer

A downward-sloping straight line on a production possibilities frontier indicates that there is a constant opportunity cost between producing one good and another. This means that for every unit of one good produced, a constant amount of the other good must be given up. This is only possible if the two goods can be switched between each other at a constant rate, which is the case in choice A.

Question 12

Table 3-1
 
-Refer to Table 3-1.The opportunity cost of 1 pound of meat for the rancher is
A)4 hours of labor.
B)5 hours of labor.
C)4/5 pounds of potatoes.
D)5/4 pounds of potatoes.

Accepted Answer

According to the table, the rancher can produce 5 pounds of meat OR 4 pounds of potatoes in one hour. Therefore, the opportunity cost of 1 pound of meat for the rancher is 4/5 pounds of potatoes (the amount of potatoes the rancher could have produced instead of 1 pound of meat in one hour).

Question 13

People generally choose to depend upon others for goods and services.Economists view this interdependence as
A)a good thing, since it fosters friendships and bonds that otherwise would never develop.
B)a good thing, since it allows people to consume more goods and services than they would otherwise be able to consume.
C)a bad thing, since self-sufficiency may become necessary in the future.
D)a bad thing, since interdependence reduces people's self-esteem and causes various social problems.

Accepted Answer

Economists generally view interdependence as a good thing because it allows people to consume more goods and services than they would be able to produce on their own. This leads to gains from trade and specialization, increasing overall economic efficiency and improving living standards.

Question 14

Regan grows flowers and makes ceramic vases.Jayson also grows flowers and makes vases,but Regan is better at producing both.In this case,trade could
A)benefit both Jayson and Regan.
B)benefit Jayson, but not Regan.
C)benefit Regan, but not Jayson.
D)benefit neither Jayson nor Regan.

Accepted Answer

Regan has a comparative advantage in both growing flowers and making vases, which means she can produce these goods at a lower opportunity cost than Jayson. Jayson also has a comparative advantage, but only in one of the two goods. By trading, Regan can specialize in producing the good that she is relatively better at, while Jayson can do the same with the other good. This will lead to a more efficient allocation of resources, increased output, and ultimately higher welfare for both parties.

Question 15

Table 3-1
 
-Refer to Table 3-1.The opportunity cost of 1 pound of potatoes for the farmer is
A)8 hours of labor.
B)2 hours of labor.
C)4 pounds of meat.
D)1/4 pound of meat.

Accepted Answer

The opportunity cost of producing 1 pound of potatoes is the amount of meat the farmer could have produced with the same resources. If 1 pound of potatoes costs 1/4 pound of meat, then the opportunity cost is 1/4 pound of meat.

Question 16

Ben bakes bread and Shawna knits sweaters.Ben likes to eat bread and wear sweaters,and the same is true for Shawna.In which of the following cases is it impossible for both Ben and Shawna to benefit from trade?
A)Ben cannot knit sweaters and Shawna cannot bake bread.
B)Ben is better than Shawna at baking bread and Shawna is better than Ben at knitting sweaters.
C)Ben is better than Shawna at baking bread and at knitting sweaters.
D)None of the above is correct.

Accepted Answer

If Ben is better at both activities, he has no incentive to trade with Shawna, making it impossible for both to benefit from trade.

Question 17

People who provide you with goods and services
A)are acting out of generosity.
B)do so because they have no other choice.
C)do so because they get something in return.
D)are required to do so by government.

Accepted Answer

People who provide goods and services do so because they get something in return, usually money. This is the fundamental principle of free-market capitalism. While some do act out of generosity or a sense of duty, the vast majority are motivated by the opportunity to earn income from their work.

Question 18

Table 3-1
 
-Refer to Table 3-1.The rancher has an absolute advantage in
A)both goods, and the farmer has a comparative advantage in meat.
B)both goods, and the farmer has a comparative advantage in potatoes.
C)meat, and the farmer has a comparative advantage in potatoes.
D)meat, and the farmer has a comparative advantage in neither good.

Accepted Answer

The rancher can produce 10 pounds of meat or 5 pounds of potatoes in one hour, while the farmer can produce 4 pounds of meat or 8 pounds of potatoes in one hour. Therefore, the rancher has an absolute advantage in producing meat and potatoes. However, the farmer has a comparative advantage in producing potatoes because they have a lower opportunity cost. For every pound of potatoes, the farmer gives up only 0.5 pounds of meat (4/8), while the rancher gives up 1 pound of meat for every pound of potatoes (10/5). Therefore, the farmer should focus on producing potatoes, and the rancher should focus on producing meat, resulting in a mutually beneficial trade relationship.

Question 19

Table 3-1
 
-Refer to Table 3-1.The farmer has an absolute advantage in
A)meat, and the rancher has an absolute advantage in potatoes.
B)potatoes, and the rancher has an absolute advantage in meat.
C)meat, and the rancher has an absolute advantage in meat.
D)neither good, and the rancher has an absolute advantage in both goods.

Accepted Answer

To determine who has an absolute advantage, we compare the productivity of each producer for each good. The farmer can produce 10 potatoes or 5 units of meat, while the rancher can produce 20 potatoes or 10 units of meat. This means that the farmer has an absolute advantage in potatoes and the rancher has an absolute advantage in meat. Therefore, the correct choice is B) potatoes, and the rancher has an absolute advantage in meat.

Question 20

If labor in Mexico is less productive than labor in the United States in all areas of production,
A)neither nation can benefit from trade.
B)Mexico can benefit from trade but the United States cannot.
C)the United States will have a comparative advantage relative to Mexico in the production of all goods.
D)both Mexico and the United States still can benefit from trade.

Accepted Answer

Even if labor in Mexico is less productive than labor in the United States in all areas of production, they can still benefit from trade. Mexico can specialize in and produce goods in which they have a comparative advantage or lower opportunity cost, while the United States can specialize in and produce goods in which they have a comparative advantage. This enables both countries to trade and consume more than they could produce by themselves.

Quiz 3: Interdependence and the Gains From Trade

The difference between production possibilities frontiers that are bowed out and those that are straight lines is that

Table 3-1 -Refer to Table 3-1.The opportunity cost of 1 pound of potatoes for the rancher is

Consider a shoemaker and a vegetable farmer.Potentially,trade could benefit both individuals if

Which of the following statements is not correct?

Without trade,

A production possibilities frontier will be a straight line if

When an economist points out that you and millions of other people are interdependent,he or she is referring to the fact that we all

Table 3-1 -Refer to Table 3-1.The opportunity cost of 1 pound of meat for the farmer is

Shannon bakes cookies and Justin grows vegetables.In which of the following cases is it impossible for both Shannon and Justin to benefit from trade?

A country's consumption possibilities frontier can be outside its production possibilities frontier if

The production possibilities frontier is a downward-sloping straight line when

Table 3-1 -Refer to Table 3-1.The opportunity cost of 1 pound of meat for the rancher is

People generally choose to depend upon others for goods and services.Economists view this interdependence as

Regan grows flowers and makes ceramic vases.Jayson also grows flowers and makes vases,but Regan is better at producing both.In this case,trade could

Table 3-1 -Refer to Table 3-1.The opportunity cost of 1 pound of potatoes for the farmer is

Ben bakes bread and Shawna knits sweaters.Ben likes to eat bread and wear sweaters,and the same is true for Shawna.In which of the following cases is it impossible for both Ben and Shawna to benefit from trade?

People who provide you with goods and services

Table 3-1 -Refer to Table 3-1.The rancher has an absolute advantage in

Table 3-1 -Refer to Table 3-1.The farmer has an absolute advantage in

If labor in Mexico is less productive than labor in the United States in all areas of production,