Question 1

By definition,exports are
A)limits placed on the quantity of goods brought into a country.
B)goods in which a country has an absolute advantage.
C)people who work in foreign countries.
D)goods produced domestically and sold abroad.

Accepted Answer

By definition, exports refer to goods or services produced in a country and sold to customers or businesses in another country. Therefore, option D -- goods produced domestically and sold abroad -- is the best choice. Option A refers to imports while options B and C do not correctly define exports.

Question 2

Trade between countries
A)allows each country to consume at a point outside its production possibilities frontier.
B)limits a country's ability to produce goods and services on its own.
C)must benefit both countries equally;otherwise,trade is not mutually beneficial.
D)can best be understood by examining the countries' absolute advantages.

Accepted Answer

Trade allows each country to consume at a point outside its production possibilities frontier by specializing in the production of goods and services it has a comparative advantage in producing, and then trading with other countries for goods and services it is less efficient in producing. This allows countries to consume more than they could if they had to produce everything on their own. Therefore, choice A is correct while the other choices are incorrect.

Question 3

Suppose that a worker in Boatland can produce either 5 units of wheat or 25 units of fish per year,and a worker in Farmland can produce either 25 units of wheat or 5 units of fish per year.There are 30 workers in each country.No trade occurs between the two countries.Boatland produces and consumes 75 units of wheat and 375 units of fish per year while Farmland produces and consumes 375 units of wheat and 75 units of fish per year.If trade were to occur,Boatland would trade 90 units of fish to Farmland in exchange for 80 units of wheat.If Boatland now completely specializes in fish production,how many units of fish could it now consume along with the 80 units of imported wheat?
A)490 units
B)500 units
C)610 units
D)660 units

Accepted Answer

D

Question 4

Suppose the U.S.and Japan can both produce airplanes and televisions and the U.S.has a comparative advantage in the production of airplanes while Japan has a comparative advantage in the production of televisions.Also suppose the U.S.has an absolute advantage in the production of both airplanes and televisions.The U.S.should
A)not trade airplanes or televisions with Japan.
B)import airplanes from Japan and export televisions to Japan.
C)export airplanes to Japan and import televisions from Japan.
D)export both airplanes and televisions to Japan.

Accepted Answer

Even though the U.S. has an absolute advantage in both airplanes and televisions, it is still beneficial to specialize in producing the good in which it has a comparative advantage. By doing so, both countries can benefit from trade. The U.S. can export its surplus airplanes to Japan while importing televisions, and both countries can benefit from this exchange.

Question 5

Figure 3-25
Chile's Production Possibilities Frontier
Colombia's Production Possibilities Frontier  
-Refer to Figure 3-25.Colombia should specialize in the production of
A)coffee and import soybeans.
B)soybeans and import coffee.
C)both goods and import neither good.
D)neither good and import both goods.

Accepted Answer

Colombia should specialize in the production of coffee and import soybeans if it has a comparative advantage in coffee production, meaning it can produce coffee more efficiently than soybeans compared to other countries.

Question 6

Which of the following would not result from all countries specializing according to the principle of comparative advantage?
A)The size of the economic pie would increase.
B)Worldwide production of goods and services would increase.
C)The well-being of citizens in each country would be enhanced.
D)Each country's production possibilities frontier would shift inward.

Accepted Answer

According to the principle of comparative advantage, each country specializes in producing the goods and services for which it has the lowest opportunity cost. This results in an increase in worldwide production and an increase in the size of the economic pie, which enhances the well-being of citizens in each country. However, there is no reason why each country's production possibilities frontier would shift inward as a result of specialization according to comparative advantage. In fact, specialization should allow each country to produce more efficiently and shift its production possibilities frontier outward.

Question 7

Figure 3-25
Chile's Production Possibilities Frontier
Colombia's Production Possibilities Frontier  
-Refer to Figure 3-25.Chile should specialize in the production of
A)coffee and import soybeans.
B)soybeans and import coffee.
C)both goods and import neither good.
D)neither good and import both goods.

Accepted Answer

Chile has a comparative advantage in producing soybeans since its production possibility frontier shows that it can produce more soybeans than coffee. Therefore, it should specialize in producing soybeans and import coffee to achieve the highest level of economic efficiency.

Question 8

Serena Williams should pay someone else to mow her lawn instead of mowing it herself,unless
A)Serena has an absolute advantage over everyone else in mowing her lawn.
B)Serena has a comparative advantage over everyone else in mowing her lawn.
C)Serena's opportunity cost of mowing her lawn is higher than it is for everyone else.
D)All of the above are correct.

Accepted Answer

The answer of Serena Williams should pay someone else to...

Question 9

Serena Williams should probably not mow her own lawn because
A)her opportunity cost of mowing her lawn is higher than the cost of paying someone to mow it for her.
B)she has a comparative advantage in mowing her lawn relative to a landscaping service.
C)she has an absolute advantage in mowing her lawn relative to a landscaping service.
D)she might sprain her ankle.

Accepted Answer

Serena Williams has a high opportunity cost of mowing her lawn because the time she spends mowing could be spent doing something more valuable, such as practicing tennis, which is her area of expertise. Thus, it would be more efficient for her to pay someone to mow her lawn than to do it herself.

Question 10

By definition,imports are
A)people who work in foreign countries.
B)goods in which a country has an absolute advantage.
C)limits placed on the quantity of goods leaving a country.
D)goods produced abroad and sold domestically.

Accepted Answer

Imports refer to goods and services that are produced in a foreign country and sold domestically. This allows countries to access goods and services that they may not have the resources or technology to produce efficiently themselves.

Question 11

Goods produced abroad and sold domestically are called
A)exports.
B)imports.
C)exchange rates.
D)opportunity costs.

Accepted Answer

Goods produced abroad and sold domestically are known as imports.

Question 12

Suppose the U.S.and Japan both produce airplanes and televisions and the U.S.has a comparative advantage in the production of airplanes while Japan has a comparative advantage in the production of televisions.If the U.S.exports airplanes to Japan and imports televisions from Japan,
A)both countries,as a whole,will be better off.
B)all individuals in both countries will be better off.
C)both countries,as a whole,will be worse off.
D)all individuals in both countries will be worse off.

Accepted Answer

By specializing in producing the goods they have a comparative advantage in, both countries can increase their overall production and trade with each other to obtain the goods they don't produce as efficiently. This leads to an increase in overall welfare for both countries. However, it is important to note that there may be winners and losers within each country depending on their specific industries and job skills.

Question 13

A country that currently does not trade with other countries could benefit by
A)restricting imports and promoting exports.
B)promoting imports and restricting exports.
C)restricting both imports and exports.
D)not restricting trade.

Accepted Answer

By not restricting trade, the country can benefit from the advantages of international trade, such as access to a wider variety of goods and services, economies of scale, and increased competition leading to innovation and efficiency.

Question 14

Suppose the United States has a comparative advantage over Mexico in producing pork.The principle of comparative advantage asserts that
A)the United States should produce more pork than what it requires and export some of it to Mexico.
B)the United States should produce a moderate quantity of pork and import the remainder of what it requires from Mexico.
C)the United States should refrain altogether from producing pork and import all of what it requires from Mexico.
D)Mexico has nothing to gain from importing United States pork.

Accepted Answer

According to the principle of comparative advantage, a country should specialize in producing goods or services in which it has a lower opportunity cost compared to other countries, and then trade with other countries to obtain the goods or services that it cannot produce efficiently. Therefore, if the United States has a comparative advantage over Mexico in producing pork, it should produce more pork than what it requires and export some of it to Mexico, while importing other goods or services that Mexico can produce more efficiently. This way, both countries can benefit from trade, and overall efficiency and welfare can increase.

Question 15

Suppose that a worker in Boatland can produce either 5 units of wheat or 25 units of fish per year,and a worker in Farmland can produce either 25 units of wheat or 5 units of fish per year.There are 10 workers in each country.Political pressure from the fish lobby in Farmland and from the wheat lobby in Boatland has prevented trade between the two countries on the grounds that cheap imports would kill the fish industry in Farmland and the wheat industry in Boatland.As a result,Boatland produces and consumes 25 units of wheat and 125 units of fish per year while Farmland produces and consumes 125 units of wheat and 25 units of fish per year.If the political pressure were overcome and trade were to occur,each country would completely specialize in the product in which it has a comparative advantage.If trade were to occur,the combined output of the two countries would increase by
A)25 units of wheat and 25 units of fish.
B)50 units of wheat and 50 units of fish.
C)75 units of wheat and 75 units of fish.
D)100 units of wheat and 100 units of fish.

Accepted Answer

The answer of Suppose that a worker in Boatland can...

Question 16

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,
A)Belarus should export linen to Russia.
B)Russia should export linen to Belarus.
C)trading linen would provide no net advantage to either country.
D)Without additional information about opportunity costs,this question cannot be answered.

Accepted Answer

Belarus has a comparative advantage in the production of linen, which means they can produce linen at a lower opportunity cost than Russia. On the other hand, Russia has an absolute advantage in the production of linen, meaning they can produce linen more efficiently than Belarus. In this scenario, it is still beneficial for Belarus to export linen to Russia since it is their comparative advantage, and Russia can benefit from importing linen at a lower cost than it would take for them to produce it domestically.

Question 17

When a country has a comparative advantage in producing a certain good,
A)the country should import that good.
B)the country should produce just enough of that good for its own consumption.
C)the country's opportunity cost of that good is high relative to other countries' opportunity costs of that same good.
D)None of the above is correct.

Accepted Answer

A country with a comparative advantage in producing a good has a lower opportunity cost for producing that good compared to other countries, so none of the given options correctly describe this scenario.

Question 18

Figure 3-25
Chile's Production Possibilities Frontier
Colombia's Production Possibilities Frontier  
-Alexis is a lawyer.She bills her clients $100 an hour for her services.She can also mow her lawn in 30 minutes.She can hire someone to mow her lawn who takes an hour.Of the following prices,which is the highest Alexis would pay someone to mow her lawn?
A)$99
B)$49
C)$29
D)Alexis would always mow her own lawn because she can do it faster.

Accepted Answer

If Alexis billed her clients for an hour for every $100, it means that her opportunity cost for one hour is $100. Meanwhile, it only takes her 30 minutes to mow her lawn, so her opportunity cost for half an hour is $50.

Hiring someone to mow her lawn for an hour means Alexis loses $100 in income but gains an hour of free time to bill another client for $100. So her net opportunity cost for hiring someone is $0.

Therefore, the maximum amount Alexis would pay someone to mow her lawn for an hour is $50, which eliminates options A and C. Option D is also incorrect because she could hire someone and use that hour to bill a client for $100 instead of mowing her lawn.

Option B ($49) is the best choice because it is the closest to the $50 opportunity cost.

Question 19

In which of the following cases should the United States produce more noodles than it wants for its own use and trade some of those noodles to Italy in exchange for wine?
A)Americans know less than Italians know about cooking noodles.
B)The United States has an absolute advantage over Italy in producing noodles.
C)Italy has a comparative advantage over the United States in producing wine.
D)The opportunity cost of producing a gallon of wine is the same for Italy as it is for the United States.

Accepted Answer

According to the principle of comparative advantage, countries should specialize in and produce the goods they can produce at a lower opportunity cost and trade with other countries for goods they cannot produce as efficiently. Since Italy has a comparative advantage in producing wine, it would be more efficient for the United States to produce more noodles than it needs and trade some of those noodles to Italy for wine. Option A is irrelevant and does not help determine the need for trade. Option B talks about absolute advantage, which does not necessarily lead to trade. Option D does not provide enough information to determine the need for trade.

Question 20

When two countries trade with one another,it is most likely because
A)the wealthy people in each of the two countries are able to benefit,through trade,by taking advantage of other people who are poor.
B)some people involved in the trade do not understand that one of the two countries will become worse-off because of the trade.
C)the opportunity costs of producing various goods are identical for the two countries.
D)the two countries wish to take advantage of the principle of comparative advantage.

Accepted Answer

The principle of comparative advantage states that two countries should specialize in producing the goods they can produce at a lower opportunity cost, and trade with each other to obtain the other goods they need. Therefore, countries may engage in trade to take advantage of their comparative advantages, which allows both countries to benefit from trade. A is incorrect because it implies that trade only benefits the wealthy and exploits the poor. B is incorrect because it suggests that some people involved in trade do not understand the potential outcomes, which is unlikely given the complexity of trade relationships. C is incorrect because the opportunity costs of producing goods are rarely identical between countries.

Quiz 3: Interdependence and the Gains From Trade: Applications of Comparative Advantage

By definition,exports are

Trade between countries

Figure 3-25 Chile's Production Possibilities Frontier Colombia's Production Possibilities Frontier -Refer to Figure 3-25.Colombia should specialize in the production of

Which of the following would not result from all countries specializing according to the principle of comparative advantage?

Figure 3-25 Chile's Production Possibilities Frontier Colombia's Production Possibilities Frontier -Refer to Figure 3-25.Chile should specialize in the production of

Serena Williams should pay someone else to mow her lawn instead of mowing it herself,unless

Serena Williams should probably not mow her own lawn because

By definition,imports are

Goods produced abroad and sold domestically are called

Suppose the U.S.and Japan both produce airplanes and televisions and the U.S.has a comparative advantage in the production of airplanes while Japan has a comparative advantage in the production of televisions.If the U.S.exports airplanes to Japan and imports televisions from Japan,

A country that currently does not trade with other countries could benefit by

Suppose the United States has a comparative advantage over Mexico in producing pork.The principle of comparative advantage asserts that

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,

When a country has a comparative advantage in producing a certain good,

In which of the following cases should the United States produce more noodles than it wants for its own use and trade some of those noodles to Italy in exchange for wine?

When two countries trade with one another,it is most likely because