Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
1. If a nation has an absolute advantage in the production of a good,
a. it can benefit by restricting imports of that good.
b. it will specialize in the production of that good and export it.
c. it can produce that good using fewer resources than its trading partner.
d. none of these answers.
e. it can produce that good at a lower opportunity cost than its trading partner.
C
ANSWER:
2. If a nation has a comparative advantage in the production of a good,
a. it can produce that good at a lower opportunity cost than its trading partner.
b. it can benefit by restricting imports of that good.
c. it can produce that good using fewer resources than its trading partner.
d. it must be the only country with the ability to produce that good.
e. none of these answers.
A
ANSWER:
3. Which of the following statements about trade is true?
a. Unrestricted international trade benefits every person in a country equally.
b. Trade can benefit everyone in society because it allows people to specialize in
activities in which they have a comparative advantage.
c. People that are skilled at all activities cannot benefit from trade.
d. Trade can benefit everyone in society because it allows people to specialize in
activities in which they have an absolute advantage.
B
ANSWER:
4. According to the principle of comparative advantage,
a. countries should specialize in the production of goods that they enjoy consuming.
b. countries with a comparative advantage in the production of every good need not
specialize.
c. countries should specialize in the production of goods for which they have a lower
opportunity cost of production than their trading partners.
d. countries should specialize in the production of goods for which they use fewer
resources in production than their trading partners.
C
ANSWER:
5. Which of the following statements is true?
a. A self-sufficient country can, at best, consume on its production possibilities
frontier.
b. Only countries with an absolute advantage in the production of every good should
strive to be self-sufficient.
c. A self-sufficient country consumes outside its production possibilities frontier.
d. Self-sufficiency is the road to prosperity for most countries.
A
ANSWER:
6. Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there
is no trade,
a. the domestic price of 1 ring is 1/4 of a watch.
b. the domestic price of 1 ring is 3 watches.
c. the domestic price of 1 ring is 1/3 of a watch.
d. the domestic price of 1 ring is 12 watches.
e. the domestic price of 1 ring is 4 watches.
C
ANSWER:
7. Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If there
is no trade,
a. the opportunity cost of 1 watch is 1/4 of a ring.
b. the opportunity cost of 1 watch is 4 rings.
c. the opportunity cost of 1 watch is 3 rings.
d. the opportunity cost of 1 watch is 12 rings.
e. the opportunity cost of 1 watch is 1/3 of a ring.
C
ANSWER:
8. Refer to Figure 3-1. Which of the following statements about absolute advantage is true?
a. Australia has an absolute advantage in the production of food while Korea has an
absolute advantage in the production of electronics.
b. Korea has an absolute advantage in the production of food while Australia has an
absolute advantage in the production of electronics.
c. Australia has an absolute advantage in the production of both food and electronics.
d. Korea has an absolute advantage in the production of both food and electronics.
C
ANSWER:
9. Refer to Figure 3-1. The opportunity cost of 1 unit of electronics in Australia is
a. 4 units of food.
b. 5 units of food.
c. 1/5 of a unit of food.
d. 1/4 of a unit of food.
A
ANSWER:
10. Refer to Figure 3-1. The opportunity cost of 1 unit of electronics in Korea is
a. 4 units of food.
b. 1/4 units of food.
c. 2 units of food.
d. 1/2 of a unit of food.
C
ANSWER:
11. Refer to Figure 3-1. The opportunity cost of 1 unit of food in Australia is
a. 1/5 of a unit of electronics.
b. 5 units of electronics.
c. 4 units of electronics.
d. 1/4 of a unit of electronics.
D
ANSWER:
12. Refer to Figure 3-1. The opportunity cost of 1 unit of food in Korea is
a. 1/2 of a unit of electronics.
b. 1/4 units of electronics.
c. 2 units of electronics.
d. 4 units of electronics.
A
ANSWER:
13. Refer to Figure 3-1. Which of the following statements about comparative advantage is
true?
a. Australia has a comparative advantage in the production of both food and
electronics.
b. Korea has a comparative advantage in the production of both food and electronics.
c. Australia has a comparative advantage in the production of food while Korea has a
comparative advantage in the production of electronics.
d. Korea has a comparative advantage in the production of food while Australia has a
comparative advantage in the production of electronics.
e. Neither country has a comparative advantage.
C
ANSWER:
14. Refer to Figure 3-1. Korea should
a. specialize in electronics production, export electronics, and import food.
b. produce neither good because it has an absolute disadvantage in the production of
both goods.
c. produce both goods because neither country has a comparative advantage.
d. specialize in food production, export food, and import electronics
A
ANSWER:
15. Refer to Figure 3-1. Prices of electronics can be stated in terms of units of food. What is the
range of prices of electronics for which both countries could gain from trade?
a. The price must be greater than 1/5 of a unit of food but less than 1/4 of a unit of
food.
b. The price must be greater than 4 units of food but less than 5 units of food.
c. The price must be greater than 1/4 of a unit of food but less than 1/2 of a unit of
food.
d. The price must be greater than 2 units of food but less than 4 units of food.
D
ANSWER:
16. Suppose the world consists of two countries: the UK and Spain. Further, suppose there are
only two goods--food and clothing. Which of the following statements is true?
a. If the UK has an absolute advantage in the production of food, then Spain must
have an absolute advantage in the production of clothing.
b. none of these answers.
c. If the UK has a comparative advantage in the production of food, Spain might also
have a comparative advantage in the production of food.
d. If the UK has a comparative advantage in the production of food, it must also have
a comparative advantage in the production of clothing.
e. If the UK has a comparative advantage in the production of food, then Spain must
have a comparative advantage in the production of clothing.
E
ANSWER:
17. Use the production possibilities frontiers in Exhibit 4 to answer the question. Assume each
country has the same number of workers, say 20 million, and that each axis is measured in
metric tons per month. Argentina has a comparative advantage in the production of
a. neither fruit nor beef.
b. fruit.
c. both fruit and beef.
d. beef.
D
ANSWER:
18. Use the production possibilities frontiers in Exhibit 4 to answer the question. Assume each
country has the same number of workers, say 20 million, and that each axis is measured in
metric tons per month. Peru will export
a. both fruit and beef.
b. beef.
c. fruit.
d. neither fruit nor beef.
C
ANSWER:
19. Use the production possibilities frontiers in Exhibit 4 to answer the question. Assume each
country has the same number of workers, say 20 million, and that each axis is measured in
metric tons per month. The opportunity cost of producing a metric ton of beef in Peru is
a. 1/3 ton of fruit.
b. 6 tons of fruit.
c. 1 ton of fruit.
d. 2 tons of fruit.
e. 3 tons of fruit.
E
ANSWER:
20. Joe is a tax accountant. He receives €100 per hour doing tax returns. He can type 10,000
characters per hour into spreadsheets. He can hire an assistant who types 2,500 characters
per hour into spreadsheets. Which of the following statements is true?
a. none of these answers.
b. Joe should hire the assistant as long as he pays the assistant less than €25 per hour.
c. Joe should not hire an assistant because the assistant cannot type as fast as he.
d. Joe should hire the assistant as long as he pays the assistant less than €100 per
hour.
B
ANSWER: