Question 1

Mike and Sandy are two woodworkers who both make tables and chairs. In 1 month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. What do we know?
A)Mike has a comparative advantage in tables.
B)Sandy has an absolute advantage in chairs.
C)Mike has an absolute advantage in tables.
D)Sandy has a comparative advantage in tables.

Accepted Answer

To determine comparative advantage, we need to look at the opportunity cost of producing each good. For Mike, the opportunity cost of producing one table is giving up the production of 5 chairs (20 chairs / 4 tables). For Sandy, the opportunity cost of producing one table is giving up the production of 3 chairs (18 chairs / 6 tables). Therefore, Sandy has a lower opportunity cost of producing tables and has a comparative advantage in table production.

Question 2

What does comparative advantage reflect?
A)productivity.
B)relative opportunity cost.
C)efficiency.
D)terms of trade advantage.

Accepted Answer

Comparative advantage reflects the relative opportunity cost of producing a good or service. It is the ability of a country or firm to produce a particular good or service at a lower opportunity cost than its competitors. Therefore, option B is the correct choice. Options A, C, and D, although related to trade, do not accurately reflect what comparative advantage represents.

Question 3

Belarus has a comparative advantage in the production of linen, but Russia has an absolute advantage in the production of linen. If these two countries decide to trade, which of the following is correct?
A)Belarus should export linen to Russia.
B)Russia should export linen to Belarus.
C)For these two countries, trading linen would be a "stand-off" so they should trade another product.
D)Without additional information about Russia, this question cannot be answered.

Accepted Answer

Even if Russia has an absolute advantage in the production of linen, Belarus still has a comparative advantage. This means that Belarus can produce linen at a lower opportunity cost than Russia. Therefore, it would be beneficial for Belarus to export linen to Russia and for Russia to import linen from Belarus.

Question 4

Mike and Sandy are two woodworkers who both make tables and chairs. In 1 month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. What is the opportunity cost of 1 chair?
A)1/5 table for Mike and 1/3 table for Sandy.
B)5 tables for Mike and 3 tables for Sandy.
C)1/3 table for Mike and 1/5 table for Sandy.
D)3 tables for Mike and 5 tables for Sandy.

Accepted Answer

The opportunity cost of 1 chair for Mike is 1/5 table because he can make 4 tables or 20 chairs, so 1 table equals 5 chairs. For Sandy, the opportunity cost of 1 chair is 1/3 table because she can make 6 tables or 18 chairs, so 1 table equals 3 chairs.

Question 5

For what reason does total output in an economy increase when each person specializes?
A)Because there is much less competition for the same resources.
B)Because each person spends more time producing that product for which they have a comparative advantage.
C)Because a wider variety of products can be produced with specialization.
D)Because more people will be producing products than before.

Accepted Answer

When each person specializes, they can produce more of a certain product by focusing their time and resources on it. This increased efficiency results in a higher total output in the economy.

Question 6

Which of the following would NOT occur if each person specializes in the good for which they have a comparative advantage?
A)Each person's production possibilities frontier will shift outward.
B)Total production in the economy will increase.
C)Everyone can be better off with specialization and trade.
D)The size of the economic pie will increase.

Accepted Answer

Each person's production possibilities frontier will not shift outward as a result of specialization alone. This is because specialization means that individuals will be producing more of one good and less of another, which leads to a movement along their existing production possibilities frontier. However, specialization and trade can lead to an increase in total production in the economy, make everyone better off, and increase the size of the economic pie.

Question 7

What is the term that means whatever must be given up to obtain an item?
A)efficiency.
B)externality.
C)opportunity cost.
D)market failure.

Accepted Answer

Opportunity cost is the term that refers to the cost of the next best alternative when a decision is made. It is the value of the benefit forgone when choosing one option over another.

Question 8

Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. If these two countries specialize and trade according to their comparative advantage, which of the following would NOT be true?
A)Greece will specialize in and export fish.
B)Some individuals in each country will be hurt.
C)More of each good can be consumed in both countries.
D)Greece will benefit from trade more than Germany.

Accepted Answer

It is not necessarily true that Greece will benefit from trade more than Germany. Both countries can benefit from trade, but the extent to which each country benefits depends on the terms of trade (i.e. the relative prices of goods). If Germany's cars are in higher demand than Greece's fish, then Germany may benefit more from trade.

Question 9

What should a country do if it has a comparative advantage in a product?
A)It should import that product.
B)It should export that product.
C)It should keep the product for domestic use since it is relatively inexpensive to produce.
D)Without additional information, an import/export decision cannot be made.

Accepted Answer

If a country has a comparative advantage in producing a product, it means that it can produce that product at a lower opportunity cost compared to other countries. Therefore, it should focus on producing and exporting that product to other countries where it can earn higher profits. This will lead to increased GDP, job creation, and a higher standard of living for its citizens. Importing the product would be counterintuitive as it would be more expensive for the country to produce the product domestically.

Question 10

Suppose a producer can produce a product with lower opportunity cost. Which of the following is correct?
A)The producer has a comparative advantage in the production of that good.
B)The producer has an absolute advantage in the production of that good.
C)The producer has both an absolute and comparative advantage in the production of that good.
D)The producer should import that product.

Accepted Answer

Comparative advantage refers to the ability of a producer to produce a good at a lower opportunity cost compared to another producer. Therefore, if a producer can produce a product with lower opportunity cost, it means that they have a comparative advantage in the production of that good. This does not necessarily mean they have an absolute advantage, as another producer could still produce more of the good in absolute terms. Importing the product may or may not be the best choice depending on various factors such as the availability and cost of importing versus producing domestically.

Question 11

Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. What will happen if these two countries specialize and trade according to their comparative advantage?
A)All individuals in both countries will benefit.
B)Greece will specialize in and export cars.
C)Germany will produce more cars than in the absence of trade.
D)Germany will produce more fish than in the absence of trade.

Accepted Answer

When countries specialize according to their comparative advantage, they produce more of the goods for which they have a comparative advantage. Therefore, Germany will produce more cars, not fish, than in the absence of trade.

Question 12

What happens when countries specialize according to their comparative advantage?
A)It is possible to increase world output of all goods.
B)It is possible to increase world output of some goods only by reducing the output of others.
C)One country is likely to gain from trade while others lose.
D)All countries will lose from trade.

Accepted Answer

When countries specialize according to their comparative advantage, they produce goods and services that they are most efficient at and then trade with other countries. This leads to an increase in world output of all goods, as each country produces what they are comparatively best at, thus lowering the overall cost of production and increasing efficiency. Therefore, option A is the correct answer.

Question 13

Suppose a producer requires a smaller quantity of inputs to produce a good. Which of the following is correct?
A)The producer should import that good.
B)The producer has a comparative advantage in the production of that good.
C)The producer has an absolute advantage in the production of that good.
D)The producer has both an absolute and comparative advantage in the production of that good.

Accepted Answer

A producer who requires fewer inputs to produce a good has an absolute advantage in its production.

Question 14

Which of the following is correct? Trade
A)Trade allows a person to consume at a point outside his production possibilities frontier.
B)Trade limits a person's ability to produce goods and services on her own.
C)Trade must benefit both traders equally.
D)Trade is based on absolute advantage.

Accepted Answer

Trade allows individuals or countries to specialize in producing goods or services in which they have a comparative advantage, and exchange them with others who have a comparative advantage in producing other goods or services. This enables them to consume at a point outside their production possibilities frontier.

Question 15

Which of the following is NOT true concerning comparative advantage?
A)The comparative advantage is determined by which person can produce a good using fewer inputs.
B)The principle of comparative advantage applies to countries as well as people.
C)Economists use the principle of comparative advantage to advocate free trade.
D)Gains from trade are based on the principle of comparative advantage.

Accepted Answer

Comparative advantage is determined by which person or country can produce a good at a lower opportunity cost, not by using fewer inputs. The concept of opportunity cost involves considering the foregone alternative of producing a good instead of another, and it accounts for the fact that resources are scarce and have alternative uses. Thus, even if person A can produce a good with fewer inputs than person B, it may still be optimal for person A to specialize in producing the good for which they have a lower opportunity cost, as this would allow for more efficient resource allocation and gains from trade with person B.

Question 16

Trade can benefit society as a whole because it allows for each of the following EXCEPT:
A)a more efficient use of resources.
B)goods to be obtained at a lower opportunity cost.
C)people to specialize in activities in which they have a comparative advantage.
D)some countries to gain political control over trading partners.

Accepted Answer

Political control over trading partners is not a benefit that trade provides to society as a whole. It is more of a potential negative consequence or risk. The other choices listed all describe potential benefits of trade.

Question 17

How is absolute advantage found?
A)By comparing opportunity costs.
B)By calculating the dollar cost of production.
C)By comparing the productivity of one nation to that of another.
D)By first determining which country has a comparative advantage.

Accepted Answer

Absolute advantage is found by comparing the productivity of one nation to that of another. It is determined by comparing the total output of each country for a specific good or service. The nation that can produce more output using the same amount of resources has an absolute advantage in the production of that good.

Question 18

What is the opportunity cost of an item?
A)The number of hours needed to earn money to buy it.
B)What you give up to get that item.
C)Always less than the dollar value of the item.
D)Always equal to the dollar value of the item.

Accepted Answer

The opportunity cost of an item is what you give up to obtain that item. This means that you choose between different alternatives, and the opportunity cost is the value of the next best alternative that you could have chosen but didn't.

Question 19

Mike and Sandy are two woodworkers who both make tables and chairs. In 1 month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. What do we know?
A)Mike has an absolute advantage in chairs.
B)Mike has a comparative advantage in tables.
C)Sandy has an absolute advantage in chairs.
D)Sandy has a comparative advantage in chairs.

Accepted Answer

The answer of Mike and Sandy are two woodworkers who...

Question 20

Mike and Sandy are two woodworkers who both make tables and chairs. In 1 month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. What is the opportunity cost of 1 table?
A)1/5 chair for Mike and 1/3 chair for Sandy.
B)5 chairs for Mike and 3 chairs for Sandy.
C)1/3 chair for Mike and 1/5 chair for Sandy.
D)3 chairs for Mike and 5 chairs for Sandy.

Accepted Answer

The answer of Mike and Sandy are two woodworkers who...

Quiz 3: Interdependence and the Gains From Trade

Mike and Sandy are two woodworkers who both make tables and chairs. In 1 month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. What do we know?

What does comparative advantage reflect?

Belarus has a comparative advantage in the production of linen, but Russia has an absolute advantage in the production of linen. If these two countries decide to trade, which of the following is correct?

Mike and Sandy are two woodworkers who both make tables and chairs. In 1 month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. What is the opportunity cost of 1 chair?

For what reason does total output in an economy increase when each person specializes?

Which of the following would NOT occur if each person specializes in the good for which they have a comparative advantage?

What is the term that means whatever must be given up to obtain an item?

Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. If these two countries specialize and trade according to their comparative advantage, which of the following would NOT be true?

What should a country do if it has a comparative advantage in a product?

Suppose a producer can produce a product with lower opportunity cost. Which of the following is correct?

Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. What will happen if these two countries specialize and trade according to their comparative advantage?

What happens when countries specialize according to their comparative advantage?

Suppose a producer requires a smaller quantity of inputs to produce a good. Which of the following is correct?

Which of the following is correct? Trade

Which of the following is NOT true concerning comparative advantage?

Trade can benefit society as a whole because it allows for each of the following EXCEPT:

How is absolute advantage found?

What is the opportunity cost of an item?

Mike and Sandy are two woodworkers who both make tables and chairs. In 1 month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. What do we know?

Mike and Sandy are two woodworkers who both make tables and chairs. In 1 month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. What is the opportunity cost of 1 table?