Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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Table 3-1
| | Labor Hours Needed to Make 1 Pound of: |
Pounds produced in 40 hours: | | | Meat | Potatoes | Meat | Potatoes | Farmer | 8 | 2 | 5 | 20 | Rancher | 4 | 5 | 10 | 8 | | | | | |
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| 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. | | |
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| 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. | | |
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| 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. | | |
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Figure 3-1
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| 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. | | |
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| 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. | | |
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Table 3-3
| | Labor Hours Needed to Make One Unit of: |
Amount Produced in 24 Hours: | | | Baskets | Birdhouses | Baskets | Birdhouses | Montana | 6 | 2 | 4 | 12 | Missouri | 3 | 4 | 8 | 6 | | | | | |
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| 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. | | |
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| 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. | | |
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| 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. | | |
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| 9. | Comparative advantage reflects a. | productivity. | b. | relative
opportunity cost. | c. | efficiency. | d. | terms of trade
advantage. | | |
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| 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. | | |
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| 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. | | |
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| 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. | | |
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Table 3-4
| | Hours needed to make one unit of: |
Amount produced in 2400 hours: | | | Cars | Airplanes | Cars | Airplanes | U.S.
| 40 | 160 | 60 | 15 | Japan | 50 | 150 | 48 | 16 | | | | | |
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| 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. | | |
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| 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. | | |
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| 15. | A
good that is produced abroad and sold domestically is called a. | a
quota. | b. | a tariff. | c. | an
import. | d. | an export. | | |
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| 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. | | |
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| 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. | | |
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| 18. | The
principle of comparative advantage was developed by a. | Harry
Truman. | b. | David Ricardo. | c. | John Maynard
Keynes. | d. | Adam Smith. | | |
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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 | | | Cheese | Bread | Cheese | Bread | England | 1 | 2 | 40 | 20 | Spain | 2 | 8 | 20 | 5 | | | | | |
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| 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. | | |
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| 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. | | |
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True/False
Indicate whether the sentence or statement is true
or false.
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| 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.
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| 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.
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Short Answer
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| | 23. | Explain the difference between absolute advantage and comparative advantage. Which is
more important in determining trade patterns, absolute advantage or comparative advantage?
Why?
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| | 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? | | |
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| | 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? | | |
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