1. The slope of the production possibilities frontier is determined by
a. the opportunity cost of
producing one more unit of the good on the horizontal axis.
b. the market prices of the goods
that the economy can produce.
c. the distribution of incomes in
the economy.
d. whether production is performed
using efficient or inefficient methods.
2. The production possibilities frontier is a downward-sloping straight
line when the
a. opportunity cost of producing
each good depends on the amount produced.
b. technology of production is
constant.
c. opportunity cost of producing
each good is independent of the amount of the good produced.
d. economy is industrialized.
3. In voluntary exchange between two countries, if one country gains
then
a. the other must lose, unless the
exchange generates external costs.
b. the other country must lose
under any circumstances.
c. the other country must lose an
equal amount.
d. there is no reason to expect
that the other country must lose.
4. International trade tends to occur whenever
a. labor is cheaper in one country
than in another.
b. one of the trading nations is
self sufficient and producing surplus goods.
c. one nation can profit from trade
at the expense of the other.
d. both nations can benefit from
trade.
5. If Japan can produce each unit of steel using fewer resources than
Canada does,
a. Canada has an absolute advantage
in steel production.
b. Japan has an absolute advantage
in steel production.
c. Japan has a comparative
advantage in steel production.
d. Canada has a comparative
advantage in steel production.
6. Which of the following statements is true?
a. Exports tend to decrease
economic efficiency.
b. A nation should specialize in
producing a good in which it has an absolute advantage.
c. A nation should specialize in
producing a good only when it has both an absolute and a comparative advantage.
d. A nation should specialize in
producing a good in which it has a comparative advantage.
7. Suppose Russia has an absolute advantage in the production of all
goods. In this instance, Russia
a. will have no incentive to engage
in international trade.
b. should specialize in producing
the goods for which it has a lower opportunity cost than other countries.
c. also has a comparative advantage
in the production of those goods.
8. What can be said regarding absolute advantage in production for the
two countries shown in this figure?
Number of workers needed to produce one unit
of each of the following goods:
a. Colombia has an absolute
advantage in producing both calculators and radios.
b. Korea only has an absolute
advantage in producing calculators.
c. Korea has an absolute advantage
in producing both radios and calculators.
d. Columbia only has an absolute
advantage in producing calculators.
9. Which of the following will change a nation’s comparative advantage?
a. a technological advance in
producing manufactured goods
b. a doubling of all wages
c. quotas on imports
d. a change in consumers’
preferences for imported goods
10. If a nation does not have an absolute advantage in producing
anything, it
a. has no comparative advantage
either.
b. could have a comparative
advantage in something.
c. will try to get along without
trade.
d. will export raw materials and
import finished products.
11. In the marketplace, John voluntarily sells his last two loaves of
bread to Mary for $2. We can infer that this will benefit
a. both John and Mary.
b. Mary, but not John, since these
are John’s last two loaves of bread.
c. Mary, while imposing a cost on
John equal to the benefit Mary receives.
d. neither John nor Mary.
12. Trade based on each country’s comparative advantage is
a. economically efficient because
both countries are better off than they were before they traded.
b. economically inefficient because
the country with the absolute advantage is made worse off.
c. ineffective in improving
efficiency, since one country’s gain will be offset by the other country’s
loss.
d. economically efficient only if
each country also has the absolute advantage in producing their good.
13. If Armenia can produce two rugs or 100 spy novels in an hour, and
Turkey can produce one rug or 50 spy novels in an hour
a. Turkey should produce both rugs
and spy novels.
b. Turkey should produce only rugs.
c. Armenia should produce only
rugs.
d. there are no gains from trade
between these two countries with these two goods.
14. Suppose these diagrams depict the production possibilities
frontiers of wheat and corn for two countries, the United States and Canada.
What is the most wheat the U.S. would be willing to trade for one unit of
Canada’s corn?
a. 1/3
b. 1/4
c. 3
d. 4
15. Suppose these diagrams depict the production possibilities
frontiers of wheat and corn for two countries, the United States and Canada.
What is the most corn the Canada would be willing to trade for one unit of U.S.
wheat?
a. 1/3
b. 1/4
c. 3
d. 4
16. A good produced in Japan and sold to Korea
a. is a Korean export and Japanese
import.
b. is a Korean import and Japanese
export.
c. implies that Japan has an
absolute advantage in the production of the good.
d. implies that Korea has a
comparative advantage in the production of the good.
17. A nation should only import those goods for which it has
a. lower opportunity costs than its
trading partner.
b. higher opportunity costs than
its trading partner.
c. zero transactions costs.
d. lower costs of production than
its trading partner.
Jill can sew a child’s dress in 3 hours and can knit a baby’s blanket
in 2 hours. Sarah can sew a child’s dress in 6 hours and can knit a baby’s
blanket in 3 hours. Use this information to answer the following questions.
18. We can infer that Jill has the comparative advantage in
a. sewing.
b. knitting.
c. both activities.
d. neither activities.
19. We know that Sarah has the comparative advantage in
a. sewing.
b. knitting.
c. both activities.
d. neither activities.
20. Jill should specialize in
a. sewing.
b. knitting.
c. both activities.
d. neither activities.
21. Sarah should specialize in
a. sewing.
b. knitting.
c. both activities.
d. neither activities.
22. Which of the following describes the production possibilities
frontier for Jill and Sarah together if each works for 12 hours? The intercept
on the dress axis is __________ units and the intercept on the blanket axis is
__________ units.
a. 10; 6
b. 9;5
c. 4;4
d. 6;10
23. Given the above information, Jill would trade her dresses for
Sarah’s blankets if the price of a dress in terms of blankets was
a. less than 2/3 blankets for 1
dress.
b. more than 2 blankets for 1
dress.
c. at least 3/2 blankets for 1 dress.
d. Jill would never trade with
Sarah.
24. Given the above information, Sarah would trade her blankets for
Jill’s dresses if the price of a blanket in terms of dresses was
a. more than 1/2 dress for one
blanket.
b. less than 1/2 dress for one
blanket.
c. more than 2/3 dress for 1
blanket.
d. Sarah would never trade with
Jill.
25. Which of the following would be a mutually agreeable rate of
exchange between Jill and Sarah for dresses and blankets?
a. less than 1/2 dress for 1
blanket.
b. more than 2/3 dress for 1
blanket.
c. between 1/2 and 2/3 dress for 1
blanket.
d. between 2/3 and 2 dresses for 1
blanket.
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