Question 1

All of the following are inputs except

Accepted Answer

Government is not considered an input in the production process, but rather a regulator and facilitator of the economy. The other options (natural resources, capital equipment, entrepreneurial ability, and labor) are all inputs that contribute to the production of goods and services.

Question 2

If China has an absolute advantage in producing everything at lower cost then Canada, mutually benefical trade is impossible.

Accepted Answer

Even if China has an absolute advantage in producing everything at a lower cost than Canada, there can still be mutually beneficial trade if both countries specialize in producing the goods that they have a comparative advantage in and trade with each other. This can increase efficiency and lead to gains from trade for both countries.

Question 3

Absolute advantage is the ability to produce a product or service at a lower opportunity cost than another producer.

Accepted Answer

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. Comparative advantage, not absolute advantage, is about producing at a lower opportunity cost.

Question 4

Trade is only mutually beneficial if the traders have different comparative advantages.

Accepted Answer

Comparative advantage is when one country can produce a good or service at a lower opportunity cost than another country. This means that each country has a different comparative advantage, which leads to mutually beneficial trade. If two countries have the same comparative advantage, then there is no rationale for trade as both countries can produce the same good or service at the same cost.

Question 5

In one hour, Francis can read 10 pages of an economics textbook or read 20 pages of an accounting textbook. Francis' opportunity cost of reading a page of economics is 2 pages of accounting.

Accepted Answer

The opportunity cost of reading a page of economics is the number of pages of accounting Francis could have read instead. In this case, if Francis read 10 pages of economics, he could have read 20 pages of accounting. Therefore, the opportunity cost of 1 page of economics is 2 pages of accounting.

Question 6

Specialization and voluntary trade eliminate the problem of scarcity.

Accepted Answer

Specialization and voluntary trade can help to alleviate the effects of scarcity, but they do not eliminate it completely. Resources are still limited and choices must still be made about how they are allocated, even in a system with specialization and voluntary trade.

Question 7

In a zero-sum game, one person's gain equals another person's loss.

Accepted Answer

In a zero-sum game, the total gains and losses always net to zero, meaning one person's gain must equal another person's loss.

Question 8

Voluntary trade is a smart choice because the value of what you give up is less than the value of what you get.

Accepted Answer

Voluntary trade is based on the principle of comparative advantage, which means that individuals or countries should specialize in producing goods or services that they can produce more efficiently than others, and trade with others for goods or services that others can produce more efficiently. This leads to a mutual benefit for both parties involved, as they receive goods or services that are of higher value than what they gave up. Therefore, voluntary trade is a smart choice as it enables individuals or countries to utilize their resources efficiently and maximize their gains.

Question 9

Opportunity cost is the key to achieving the mutual benefits from trade.

Accepted Answer

Opportunity cost is the cost of the next best alternative forgone in order to pursue a certain action or choice. In the context of trade, it means that countries should specialize in producing the goods and services that have a lower opportunity cost for them, and then trade with other countries who have a comparative advantage in producing goods with a lower opportunity cost for them. By doing so, both countries can benefit from the trade and produce more goods overall. Therefore, understanding and considering opportunity cost is crucial for achieving the mutual benefits from trade.

Question 10

In one hour, Francis can read 10 pages of an economics textbook or read 20 pages of an accounting textbook. Francis' opportunity cost of reading a page of accounting is 2 pages of economics.

Accepted Answer

Francis' opportunity cost of reading a page of accounting is 0.5 pages of economics, because for every page of accounting read, Francis gives up reading half a page of economics (10 pages of economics / 20 pages of accounting = 0.5).

Question 11

In a zero-sum game, there is a loser for every winner.

Accepted Answer

In a zero-sum game, the total gains of all players are equal to the total losses of all players. Therefore, for every winner who gains something, there must be a loser who loses something, making it a zero-sum game.

Question 12

Differences in opportunity costs are the key to mutually beneficial gains from trade.

Accepted Answer

When individuals or countries have different opportunity costs for producing a good or service, it means they can produce certain goods more efficiently or at a lower cost than others. By specializing in the production of goods they have a comparative advantage in and trading with others, individuals or countries can both benefit and increase their overall output and consumption. This is known as the principle of comparative advantage and is the basis for mutually beneficial gains from trade.

Question 13

It takes Amber 5 minutes to iron a shirt and 20 minutes to wash her car. Gina can wash her car in 15 minutes but it takes her 10 minutes to iron a shirt. There is a mutually beneficial trade if Amber specializes in ironing shirts and Gina specializes in washing cars.

Accepted Answer

Amber has a comparative advantage in ironing shirts since she can do it in less time than it takes Gina, and Gina has a comparative advantage in washing cars since she can do it in less time than it takes Amber. By specializing in their respective tasks, they can both increase their productivity and efficiency, and ultimately benefit from trading with each other.

Question 14

Absolute advantage is the key to mutually beneficial gains from trade.

Accepted Answer

While absolute advantage may allow for gains from trade, it is not the only factor. Comparative advantage, where countries specialize in producing the goods and services that they can produce relatively more efficiently, is also important for mutually beneficial gains from trade.

Question 15

Differences in comparative advantage are the key to mutually beneficial gains from trade.

Accepted Answer

This statement is true. Comparative advantage refers to a country's ability to produce a particular good or service at a lower opportunity cost than another country. By specializing in the production of goods and services in which they have a comparative advantage, countries can increase efficiency and overall production, leading to gains from trade. Ultimately, trade allows countries to benefit from the differences in their comparative advantages.

Question 16

Who wrote the 1890 book, Principles of Economics?

Accepted Answer

Alfred Marshall wrote Principles of Economics in 1890.

Question 17

Voluntary trade is a zero-sum game.

Accepted Answer

Voluntary trade is a positive-sum game where both parties involved benefit from the transaction. Each party values what they receive more than what they give up, resulting in a net gain in utility for both parties.

Question 18

Voluntary trade is a smart decision because we can specialize and produce what we are good at producing, rather than work at producing only what we wish to consume.

Accepted Answer

Voluntary trade enables specialization based on comparative advantage, allowing individuals and countries to produce goods they are most efficient at producing, which results in increased efficiency and productivity overall.

Question 19

Who wrote The Wealth of Nations?

Accepted Answer

The Wealth of Nations was written by Adam Smith, a prominent economist and philosopher of the 18th century.

Question 20

Opportunity cost can be calculated as Get divided by Give Up.

Accepted Answer

Opportunity cost is the value of the next best alternative foregone as a result of making a decision, not a ratio of "Get" divided by "Give Up."

Quiz 1: Whats in Economics for You Scarcity, Opportunity Cost, Trade, and Models