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Copyright © 2016 Pearson Education, Inc.
Economic Analysis of Social Issues (Grant)
Chapter 5 Free Exchange: Individual and International Trade
5.1 Comparative Advantage, Exchange, and Wealth Creation
1) The process of making the best of our limited resources by doing the things we are best at and
hiring other people to do the things we are not particularly good at is called
A) absolute advantage.
B) comparative advantage.
C) specialization.
D) protectionism.
Answer: C
Diff: 1 Page Ref: 99
Topic: Comparative Advantage and Specialization: Catalysts for Exchange
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade.
AACSB : Application of knowledge
2) The ability to produce a good using fewer resources than someone else is called
A) absolute advantage.
B) comparative advantage.
C) specialization.
D) protectionism.
Answer: A
Diff: 1 Page Ref: 100
Topic: Comparative Advantage and Specialization: Catalysts for Exchange
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade.
AACSB : Application of knowledge
3) The ability to produce a good at a lower opportunity cost than another producer is called
A) absolute advantage.
B) comparative advantage.
C) specialization.
D) protectionism.
Answer: B
Diff: 1 Page Ref: 100
Topic: Comparative Advantage and Specialization: Catalysts for Exchange
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade.
AACSB : Application of knowledge
2
Copyright © 2016 Pearson Education, Inc.
Table 5.1
One
Bracelet
One Tiara
Andrea
2 hours
12 hours
Hector
3 hours
15 hours
Table 5.1 shows the number of labor hours required by Andrea and Hector to each produce one
bracelet and one tiara.
4) Refer to Table 5.1. Does either Andrea or Hector have an absolute advantage and if so, in
what product?
A) Andrea only has an absolute advantage in producing bracelets.
B) Hector only has an absolute advantage in producing bracelets.
C) Andrea has an absolute advantage in producing both products.
D) Hector only has an absolute advantage in producing tiaras.
Answer: C
Diff: 2 Page Ref: 99-101
Topic: Comparative Advantage and Specialization: Catalysts for Exchange
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade.
AACSB : Analytic thinking
5) Refer to Table 5.1. What is Hector’s opportunity cost of producing one tiara?
A) 1/5 of a bracelet
B) 1.5 bracelets
C) 4 bracelets
D) 5 bracelets
Answer: D
Diff: 2 Page Ref: 99-101
Topic: Comparative Advantage and Specialization: Catalysts for Exchange
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade.
AACSB : Analytic thinking
6) Refer to Table 5.1. What is Andrea’s opportunity cost of producing one tiara?
A) 1/6 of a bracelet
B) 2/3 of a bracelet
C) 3 bracelets
D) 6 bracelets
Answer: D
Diff: 2 Page Ref: 99-101
Topic: Comparative Advantage and Specialization: Catalysts for Exchange
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade.
AACSB : Analytic thinking
3
Copyright © 2016 Pearson Education, Inc.
7) Refer to Table 5.1. What is Hector’s opportunity cost of producing one bracelet?
A) 1/5 of a tiara
B) 1.5 tiaras
C) 5 tiaras
D) 6 tiaras
Answer: A
Diff: 2 Page Ref: 99-101
Topic: Comparative Advantage and Specialization: Catalysts for Exchange
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade.
AACSB : Analytic thinking
8) Refer to Table 5.1. What is Andrea’s opportunity cost of producing one bracelet?
A) 1/6 of a tiara
B) 2/3 of a tiara
C) 6 tiaras
D) 7.5 tiaras
Answer: A
Diff: 2 Page Ref: 99-101
Topic: Comparative Advantage and Specialization: Catalysts for Exchange
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade.
AACSB : Analytic thinking
9) Refer to Table 5.1. Hector has a comparative advantage in the production of
A) bracelets.
B) tiaras.
C) both products.
D) neither product.
Answer: B
Diff: 2 Page Ref: 99-101
Topic: Comparative Advantage and Specialization: Catalysts for Exchange
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade.
AACSB : Analytic thinking
10) Refer to Table 5.1. Andrea has a comparative advantage in the production of
A) bracelets.
B) tiaras.
C) both products.
D) neither product.
Answer: A
Diff: 2 Page Ref: 99-101
Topic: Comparative Advantage and Specialization: Catalysts for Exchange
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade.
AACSB : Analytic thinking
4
Copyright © 2016 Pearson Education, Inc.
11) Refer to Table 5.1. Hector should specialize in the production of
A) bracelets.
B) tiaras.
C) both products.
D) neither product.
Answer: B
Diff: 2 Page Ref: 99-101
Topic: Comparative Advantage and Specialization: Catalysts for Exchange
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade.
AACSB : Analytic thinking
12) Refer to Table 5.1. Andrea should specialize in the production of
A) bracelets.
B) tiaras.
C) both products.
D) neither product.
Answer: A
Diff: 2 Page Ref: 99-101
Topic: Comparative Advantage and Specialization: Catalysts for Exchange
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
made from trade.
AACSB : Analytic thinking
13) The amount Jacqueline receives for selling cupcakes beyond the minimum she would be
willing to sell the cupcakes for is called
A) consumer surplus.
B) producer surplus.
C) cooperative surplus.
D) deadweight loss.
Answer: B
Diff: 1 Page Ref: 102
Topic: Exchange and Cooperative Surplus
Learning Outcome: Micro-7: Discuss the effects of consumer and producer surpluses in a
market.
AACSB : Application of knowledge
5
Copyright © 2016 Pearson Education, Inc.
14) The maximum amount Jameson would be willing to pay for a cupcake, less the price he
actually pays, is called
A) consumer surplus.
B) producer surplus.
C) cooperative surplus.
D) deadweight loss.
Answer: A
Diff: 1 Page Ref: 102
Topic: Exchange and Cooperative Surplus
Learning Outcome: Micro-7: Discuss the effects of consumer and producer surpluses in a
market.
AACSB : Application of knowledge
15) The sum of all the net benefits received by the parties to a transaction is called
A) consumer surplus.
B) producer surplus.
C) cooperative surplus.
D) deadweight loss.
Answer: C
Diff: 1 Page Ref: 102
Topic: Exchange and Cooperative Surplus
Learning Outcome: Micro-7: Discuss the effects of consumer and producer surpluses in a
market.
AACSB : Application of knowledge
16) If Jacqueline is willing to accept $1 for a cupcake and Jameson is willing to pay $3 for a
cupcake, and they negotiate a price of $2 for a cupcake, the cooperative surplus is
A) $1.
B) $2.
C) $3.
D) $4.
Answer: B
Diff: 2 Page Ref: 102
Topic: Exchange and Cooperative Surplus
Learning Outcome: Micro-7: Discuss the effects of consumer and producer surpluses in a
market.
AACSB : Analytic thinking
6
Copyright © 2016 Pearson Education, Inc.
17) If Jacqueline is willing to accept $1 for a cupcake and Jameson is willing to pay $3 for a
cupcake, the consumer surplus will ________ if the negotiated price is $1.50 as opposed to
$2.00.
A) increase
B) decrease
C) not change
D) All of the above are possibilities.
Answer: A
Diff: 2 Page Ref: 102
Topic: Exchange and Cooperative Surplus
Learning Outcome: Micro-7: Discuss the effects of consumer and producer surpluses in a
market.
AACSB : Analytic thinking
18) If Jacqueline is willing to accept $1 for a cupcake and Jameson is willing to pay $3 for a
cupcake, the producer surplus will ________ if the negotiated price is $1.50 as opposed to $2.00.
A) increase
B) decrease
C) not change
D) All of the above are possibilities.
Answer: B
Diff: 2 Page Ref: 102
Topic: Exchange and Cooperative Surplus
Learning Outcome: Micro-7: Discuss the effects of consumer and producer surpluses in a
market.
AACSB : Analytic thinking
19) Globalization has given U.S. consumers a wider variety of gourmet food products from
which to choose and has lowered the prices of these products in general. This, in turn, has
encouraged consumers to buy more gourmet food items, which has ________ the amount of
cooperative surplus for the buyers and sellers of gourmet food products.
A) increased
B) decreased
C) not changed
D) reduced to zero
Answer: A
Diff: 2 Page Ref: 103
Topic: Cooperative Surplus as a Measure of Wealth Creation
Learning Outcome: Micro-7: Discuss the effects of consumer and producer surpluses in a
market.
AACSB : Application of knowledge
Special Feature: Application 5.1: The Globalization of Wine – Our Cups Runneth Over
20) If Jacqueline is willing to accept $1 for a cupcake and Jameson is willing to pay $3 for a
cupcake, the cooperative surplus will ________ if the negotiated price is $1.50 as opposed to
$2.00.
A) increase
B) decrease
C) not change
D) All of the above are possibilities.
Answer: C
Diff: 2 Page Ref: 105
Topic: Cooperative Surplus as a Measure of Wealth Creation
Learning Outcome: Micro-7: Discuss the effects of consumer and producer surpluses in a
market.
AACSB : Analytic thinking
21) It is possible to have a comparative advantage in producing a good or service without having
an absolute advantage.
Answer: TRUE
Diff: 1 Page Ref: 100
Topic: Comparative Advantage and Specialization: Catalysts for Exchange
Learning Outcome: Micro-3: Discuss different types of market systems and the gains that can be
