Question 1

For a country in autarky,the opportunity cost of the good on the horizontal axis is the same as

Accepted Answer

In autarky, the opportunity cost of a good is equal to its relative price, which is the price of the good on the horizontal axis in terms of the good on the vertical axis.

Question 2

Given that Sandy can produce 10 economics reports or 2 sales calls and Tim can produce 2 economics reports or 1 sales call,which of the following is FALSE?

Accepted Answer

Sandy has a comparative advantage in economics reports, not sales calls, because she gives up fewer economics reports to produce a sales call compared to Tim. Comparative advantage is determined by who has the lower opportunity cost in production, not by who can produce more overall.

Question 3

The graphs above show the production possibilities curves for the U.S.and Canada,which both produce cars and wheat.
Determine comparative advantage for each country,and then draw the CPC for each country,assuming that the world price of cars is 1.5 wheat.(Assume that wheat is measured in thousands of bushels.)How would the gains from trade change if the price of cars rose to 1.75 wheat?

Accepted Answer

The answer of  
  
The graphs above show...

Question 4

Suppose that Paraguay can produce 12 wheat or 3 corn and Bolivia can produce 4 wheat or 2 corn.Suppose that opportunity costs are constant.Which of the following is a potentially agreeable trade arrangement for Paraguay and Bolivia?

Accepted Answer

The answer of Suppose that Paraguay can produce 12 wheat...

Question 5

Suppose that Canada can produce 15 timber or 3 film and Mexico can produce 9 timber or 3 film.Suppose that opportunity costs are constant.Which of the following is FALSE?

Accepted Answer

To determine the terms of trade that would make trade mutually advantageous, we need to compare opportunity costs. Canada's opportunity cost of producing one unit of timber is 1/5 unit of film (15 timber/3 film), while Mexico's opportunity cost of producing one unit of timber is 1/3 unit of film (9 timber/3 film). Therefore, Mexico has a comparative advantage in film production, and Canada has a comparative advantage in timber production. To find the terms of trade that would make trade mutually beneficial, we need to find the relative price ratio of timber to film that lies between the opportunity costs of the two countries. This ratio should be between 1/5 and 1/3. One unit of film for six units of timber falls within this range, so D is the correct answer.

Question 6

Suppose that Canada can produce 15 units of timber or 3 units of grain.Suppose that Mexico can produce 6 units of timber or 2 units of grain.Which of the following is CORRECT?

Accepted Answer

Mexico has a comparative advantage in grain production because it has a lower opportunity cost for producing grain compared to Canada.

Question 7

Given that Sandy can produce 10 economics reports or make 2 sales calls and Tim can produce 2 economics reports or make 1 sales call,we can conclude that

Accepted Answer

Sandy has a comparative advantage in producing economics reports because she can produce 10 reports compared to Tim's production of only 2 reports. On the other hand, Tim has a comparative advantage in making sales calls because he can make 1 call compared to Sandy's production of only 0.2 calls (2/10 reports). Therefore, it is efficient for Sandy to specialize in producing economics reports while Tim specializes in making sales calls. By doing this, they can trade their products and both gain from trade.

Question 8

Assume that both the United States and Germany produce beef and computers.The U.S.can produce 200 computers or 1,000 pounds of beef per day.Germany can produce 500 computers or 250 pounds of beef per day.
Graph the PPCs for each country,putting computers on the horizontal axis.Then identify the slopes of the PPCs.What does the slope represent?

Accepted Answer

The answer of Assume that both the United States and...

Question 9

Given that Sandy can produce 10 economics reports or 2 sales calls and Tim can produce 2 economics reports or 1 sales call,which of the following would NOT be a mutually agreeable terms of trade for Sandy and Tim?

Accepted Answer

The answer of Given that Sandy can produce 10 economics...

Question 10

Suppose Paraguay can produce 12 wheat or 3 corn.Suppose Bolivia can produce 4 wheat or 2 corn.Suppose opportunity costs are constant.Given these production possibilities,

Accepted Answer

Paraguay has a lower opportunity cost for producing wheat. It can produce 4 wheat for the cost of 1 corn, while Bolivia can only produce 2 wheat for the cost of 1 corn. Therefore, Paraguay has a comparative advantage in producing wheat.

Question 11

With trade,the slope of the Consumption Possibilities Curve (CPC)is equal to

Accepted Answer

The slope of the Consumption Possibilities Curve (CPC) in a trading environment is determined by the world price of the good on the horizontal axis, as this reflects the rate at which the country can trade this good for others on the international market.

Question 12

Assume that both the United States and Germany produce beef and computers.The U.S.can produce 200 computers or 1,000 pounds of beef per day.Germany can produce 500 computers or 250 pounds of beef per day.
What is the opportunity cost of beef and computer chips in each country? In which good does each country have a comparative advantage? What is the range for mutually beneficial trade in computers?

Accepted Answer

The answer of Assume that both the United States and...

Question 13

Suppose that Sandy can produce 10 economic reports or make 2 sales calls.Suppose Tim can produce 2 economic reports or make 1 sales call.Which of the following is CORRECT?

Accepted Answer

The opportunity cost is the value of the next best alternative foregone. Therefore, for Sandy, the opportunity cost of producing one economic report is giving up 1/5 of a sales call (since she can make 2 sales calls or produce 10 economic reports, the opportunity cost of one economic report is 2/10 or 1/5 of a sales call).

Question 14

The basis for free trade is the concept of

Accepted Answer

Free trade is based on the principle of comparative advantage, which means that countries specialize in producing goods in which they have a lower opportunity cost, and trade with other countries that produce goods in which they have a higher opportunity cost. This allows for more efficient use of resources and can lead to increased productivity and economic growth. Absolute advantage, differences in natural resources and climate, and differences in nominal wages are all factors that can contribute to comparative advantage, but the underlying principle is still comparative advantage.

Question 15

In our simple trade model,having a comparative advantage in a product implies that a country will specialize completely in the product

Accepted Answer

Having a comparative advantage in a product means that a country can produce it at a lower opportunity cost than another country. Therefore, it is most efficient for the country to specialize in the product with the lowest opportunity cost. This does not necessarily mean specializing completely in the product, but rather producing more of the product than the other country.

Question 16

The graphs above show the production possibilities curves for the U.S.and Canada,which both produce cars and wheat.
Based on the graphs above,which of the following is true?

Accepted Answer

The production possibilities curve for the US is steeper for cars and flatter for wheat compared to Canada's curve. This means that the US has a comparative advantage in producing cars (able to produce more cars with each unit of resources) while Canada has a comparative advantage in producing wheat (able to produce more wheat with each unit of resources). There is no information provided to determine absolute advantage.

Question 17

The graphs above show the production possibilities curves for the U.S.and Canada,which both produce cars and wheat.
Based on the graphs above,which of the following is true?

Accepted Answer

The answer of

The graphs above show the production possibilities...

Question 18

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

Accepted Answer

A country has a comparative advantage in the production of a product if its opportunity cost, in terms of the amount of other products that it gives up to produce this product, is lower than it is for its trading partners. This means that the country can produce the specific good at a lower cost than other countries, giving it an advantage in trade. Absolute advantage (option B) refers to a country's ability to produce a specific product using fewer resources than another country, which is not always the case in comparative advantage. Option C is incorrect since producing less does not necessarily mean having a comparative advantage, and Option D is incorrect because the focus is on cost, not time.

Question 19

If one nation is able to produce a good at a lower opportunity cost than another,it has

Accepted Answer

The concept of comparative advantage states that a country should specialize in producing and exporting goods in which it has a lower opportunity cost (i.e. gives up less of one good to produce another) compared to another country. This means that the country has a comparative advantage in that good, and should trade with the other country to maximize overall production efficiency.

Question 20

The United States' comparative advantage over Japan in the production of rock-n-roll music implies that (for a similar quality of music)the

Accepted Answer

Comparative advantage is about opportunity cost, not absolute cost. The U.S. has a comparative advantage in rock-n-roll music, which means that the opportunity cost of producing rock-n-roll is lower in the U.S. than in Japan. This means that if both countries were to produce the same quality of rock-n-roll music, the U.S. would have to give up less of something else to produce it, making it more efficient to produce in the U.S.

Quiz 3: Comparative Advantage and the Gains From Trade