MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers
the question.
1) If two countries agree to specialize and trade based on comparative advantage, which of the following is most likely to be true?1) _______
A) One of the countries will end up receiving all of the gains from trade.
B) Both of the countries will consume outside their respective production possibilities curves.
C) Only one of the countries will produce on and consume outside its production possibilities curve.
D) One of the countries will both consume and produce on its production possibilities curve.
2) Certain kinds of tropical fruits are impossible to grow outdoors in the United States. Suppose, however, that in order to create jobs in Wyoming, the U.S. government offered extensive subsidies to firms to produce bananas. With the subsidies, firms could build greenhouses and offer the fruit at world prices.
2) _______
A) The United States has a comparative advantage and is competitive.
B) The United States is competitive, but does not have a comparative advantage.
C) The United States now has a comparative advantage in bananas.
D) The United States has a comparative advantage, but is not competitive.
3) With trade, the slope of the Consumption Possibilities Curve (CPC) is equal to 3) _______
A) the world price of the good on the vertical axis.
B) the world price of the good on the horizontal axis.
C) the opportunity cost of the good on the vertical axis.
D) the opportunity cost of the good on the horizontal axis.
4) The United States' comparative advantage over Japan in the production of rock-n-roll music implies that (for a similar quality of music) the
4) _______
A) absolute cost of production is less in the United States.
B) opportunity cost of production is less in Japan.
C) absolute cost of production is less in Japan.
D) opportunity cost of production is less in the United States.
5) Suppose that Canada can produce 15 units of timber or 3 units of grain. Suppose that Mexico can produce 6 units of timber or 2 units of grain. Which of the following is CORRECT?
5) _______
A) The countries would find trade mutually beneficial at a trading ratio of 1 grain for 2 timber.
B) Mexico has a comparative advantage in grain production.
C) Canada has a comparative advantage in grain production.
D) Mexico has an absolute advantage in timber production.
6) Given that Sandy can produce 10 economics reports or make 2 sales calls and Tim can produce 2 economics reports or make 1 sales call, we can conclude that
6) _______
A) Tim should specialize in producing economics reports, and Sandy should specialize in producing sales calls.
B) Sandy should produce both economics reports and sales calls since she cannot possibly gain from
trade with Tim.
C) Tim should produce both economics reports and sales calls.
