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Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
Table 3-1
Labor Hours Needed to Make 1 Pound of:
Pounds produced in 40 hours:
MeatPotatoesMeatPotatoes
Farmer82520
Rancher45108
1.
Refer to Table 3-1. The Farmer has an absolute advantage in
a.potatoes, and the Rancher has a comparative advantage in meat.
b.meat, and the Rancher has a comparative advantage in potatoes.
c.neither good, and the Rancher has a comparative advantage in potatoes.
d.neither good, and the Rancher has a comparative advantage in meat.
2.
Refer to Table 3-1. The Rancher has a comparative advantage in
a.neither good, and the Farmer has a comparative advantage in both goods.
b.both goods, and the Farmer has a comparative advantage in neither good.
c.meat, and the Farmer has a comparative advantage in potatoes.
d.potatoes, and the Farmer has a comparative advantage in meat.
3.
Refer to Table 3-1. The Farmer and Rancher both could benefit by the Farmer specializing in
a.meat and the Rancher specializing in potatoes.
b.potatoes and the Rancher specializing in meat.
c.neither good and the Rancher specializing in both goods.
d.They cannot benefit by specialization and trade.
Figure 3-1
4.
Refer to Figure 3-1. Which of the following is true for Cliff and Paul?
a.Paul has an absolute advantage in both wheat and corn.
b.Paul has an absolute advantage in wheat and Cliff has an absolute advantage in corn.
c.Cliff has an absolute advantage in wheat and Paul has an absolute advantage in corn.
d.Cliff has an absolute advantage in both wheat and corn.
5.
Currently, a farmer can either grow 40 bushels of wheat or 120 bushels of corn per acre. If he were able to trade 80 bushels of corn for 30 bushels of wheat he would be
a.worse off because his opportunity cost of wheat would increase from 2.6 bushels of corn to 3 bushels of corn.
b.better off because his opportunity cost of wheat would fall from 80 bushels to 50 bushels.
c.better off because his opportunity cost of wheat would fall from 3 bushels of corn to 2.6 bushels.
d.There is not enough information to answer this question.
Table 3-3
Labor Hours Needed to Make One Unit of:
Amount Produced in 24 Hours:
BasketsBirdhousesBasketsBirdhouses
Montana62412
Missouri3486
6.
Refer to Table 3-3. If Montana and Missouri trade based on the principle of comparative advantage, Montana will export
a.baskets and Missouri will export birdhouses.
b.birdhouses and Missouri will export baskets.
c.neither good and Missouri will export both goods.
d.both goods and Missouri will export neither good.
7.
Refer to Table 3-3. If Montana and Missouri trade based on the principle of comparative advantage, Montana will export
a.all individuals in both states will gain.
b.no one in either state will gain.
c.some individuals within each state will be made worse off.
d.one state will be better off and the other state will be worse off.
8.
For two people who are planning to trade two different goods, each will have a comparative advantage in a different good unless
a.they have exactly the same opportunity cost.
b.they have agreed in advance on who will produce what and how much each will produce.
c.the terms of trade are such that neither can gain from trade.
d.one person has an absolute advantage in both products.
9.
Comparative advantage reflects
a.productivity.
b.relative opportunity cost.
c.efficiency.
d.terms of trade advantage.
10.
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.
11.
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.
12.
Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 4 tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. Given this, we know that the opportunity cost of 1 chair for
a.Mike is 1/5 table and 1/3 table for Sandy.
b.Mike is 5 tables and 3 tables for Sandy.
c.Mike is 1/3 table and 1/5 table for Sandy.
d.Mike is 3 tables and 5 tables for Sandy.
Table 3-4
Hours needed to make one unit of:
Amount produced in 2400 hours:
CarsAirplanesCarsAirplanes
U.S. 401606015
Japan501504816
13.
Refer to Table 3-4. Japan has a comparative advantage in
a.airplanes and the United States has an absolute advantage in cars.
b.cars and the United States has an absolute advantage in airplanes.
c.cars and the United States has an absolute advantage in neither good.
d.airplanes and the United States has an absolute advantage in both goods.
14.
Refer to Table 3-4. If Japan and the United States trade based on the principle of comparative advantage,
a.all individuals in both countries will gain.
b.car producers in Japan and airplane producers in the United States will gain.
c.some individuals within each society will be made worse off.
d.one country will be better off and the other country will be worse off.
15.
A good that is produced abroad and sold domestically is called
a.a quota.
b.a tariff.
c.an import.
d.an export.
16.
Imports are
a.people who work in foreign countries.
b.an example of an economic model.
c.whatever is given up to obtain some item.
d.goods produced abroad and sold domestically.
17.
Tariffs are
a.taxes placed on imported products.
b.quantity limits placed on imported products.
c.goods produced domestically and sold abroad.
d.the same as a quota.
18.
The principle of comparative advantage was developed by
a.Harry Truman.
b.David Ricardo.
c.John Maynard Keynes.
d.Adam Smith.
Use the accompanying table to answer the following questions:
Table 3-5
Labor hours needed to make one unit of
Amount produced in 40 hours
CheeseBreadCheeseBread
England124020
Spain28205
19.
Refer to Table 3-5. If England and Spain trade based on the principle of comparative advantage, England will export which product to Spain?
a.cheese
b.bread
c.both cheese and bread
d.England cannot benefit from trade with Spain.
20.
Refer to Table 3-5. If England and Spain trade based on the principle of comparative advantage, Spain will export which product to England?
a.bread
b.both bread and cheese
c.cheese
d.Spain cannot benefit from trade with Spain.
True/False
Indicate whether the sentence or statement is true or false.
21.
It takes Russell 6 hours to produce a bushel of corn and 2 hours to wash and polish a car. It takes Wilma 6 hours to produce a bushel of corn and 1 hour to wash and polish a car. Wilma and Russell cannot gain from specialization and trade, since it takes each of them 6 hours to produce 1 bushel of corn.
22.
When each person specializes in producing the good for which he or she has a comparative advantage, each person can gain from trade but total production in the economy is unchanged.
23.
Explain the difference between absolute advantage and comparative advantage. Which is more important in determining trade patterns, absolute advantage or comparative advantage? Why?
24.
Gary and Diane must prepare a presentation for their marketing class. As part of their presentation, they must do a series of calculations and prepare 50 PowerPoint slides. It would take Gary 10 hours to do the required calculation and 10 hours to prepare the slides. It would take Diane 12 hours to do the calculations and 20 hours to prepare the slides.
a.How much time would it take the two to complete the project if they divide the calculations equally and the slides equally?
b.How much time would it take the two to complete the project if they use comparative advantage and specialize in calculating or preparing slides?
c.If Diane and Gary have the same opportunity cost of $5 per hour, is there a better solution than for each to specialize in calculating or preparing slides?
25.
Suppose that a worker in Taiwan can make 2 TVs or 10 pairs of shoes per week, and a worker in Korea can make 3 TVs or 20 pairs of shoes per week.
a.In what sense do TVs and shoes cost less in Korea than in Taiwan?
b.In what sense do TVs cost less in Taiwan than in Korea?
c.If Taiwan and Korea were to engage in trade, which country would export which good?
d.Would the answer to the above question change if a worker in Korea could make 4 TVs per week?
