True / False
1. In most countries today, many goods and services consumed are imported from abroad, and many goods and services
produced are exported to foreign customers.
a.
True
b.
False
2. Interdependence among individuals and interdependence among nations are both based on the gains from trade.
a.
True
b.
False
3. If a person chooses self-sufficiency, then she can only consume what she produces.
a.
True
b.
False
4. If Wrex can produce more math problems per hour and more book reports per hour than Maxine can, then Wrex cannot
gain from trading math problems and book reports with Maxine.
a.
True
b.
False
5. Assume a farmer has the ability to produce corn and/or beans. Whenever the farmer spends 1 hour less producing corn
and 1 hour more producing beans, he reduces his output of corn by 2 bushels and raises his output of beans by 3 bushels.
In view of these assumptions, the farmer’s production possibilities frontier is bowed out.
a.
True
b.
False
6. To produce 100 bushels of wheat, Farmer A requires fewer inputs than does Farmer B. We can conclude that Farmer A
has an absolute advantage over Farmer B in producing wheat.
a.
True
b.
False
7. It is possible for the U.S. to gain from trade with Germany even if it takes U.S. workers fewer hours to produce every
good than it takes German workers.
a.
True
b.
False
8. A production possibilities frontier is a graph that shows the combination of outputs that an economy should produce.
a.
True
b.
False
9. Production possibilities frontiers cannot be used to illustrate tradeoffs.
a.
True
b.
False
10. The production possibilities frontier shows the trade-offs that the producer faces but does not identify the choice the
producer will make.
a.
True
b.
False
11. An economy can produce at any point on or inside its production possibilities frontier, but it cannot produce at points
outside its production possibilities frontier.
a.
True
b.
False
12. An assumption of the production possibilities frontier model is that technology is fixed.
a.
True
b.
False
13. Trade allows a country to consume outside its production possibilities frontier.
a.
True
b.
False
14. Opportunity cost refers to how many inputs a producer requires to produce a good.
a.
True
b.
False
15. Opportunity cost measures the trade-off between two goods that each producer faces.
a.
True
b.
False
16. For a country producing two goods, the opportunity cost of one good will be the inverse of the opportunity cost of the
other good.
a.
True
b.
False
17. Henry can make a bird house in 3 hours and he can make a bird feeder in 1 hour. The opportunity cost to Henry of
making a bird house is 1/3 bird feeder.
a.
True
b.
False
18. In one month, Moira can knit 2 sweaters or 4 scarves. In one month, Tori can knit 1 sweater or 3 scarves. Moira’s
opportunity cost of knitting scarves is lower than Tori’s opportunity cost of knitting scarves.
a.
True
b.
False
19. Suppose that in one hour Dewey can produce either 10 bushels of corn or 20 yards of cloth. Dewey’s opportunity cost
of producing one bushel of corn is 1/2 yard of cloth.
a.
True
b.
False
20. Jake can complete an oil change in 45 minutes and he can write a poem in 90 minutes. Ming-la can complete an oil
change in 30 minutes and she can write a poem in 90 minutes. Jake’s opportunity cost of writing a poem is lower than
Ming-la’s opportunity cost of writing a poem.
a.
True
b.
False
21. Harry is a computer company executive, earning $200 per hour managing the company and promoting its products.
His daughter Quinn is a high school student, earning $6 per hour helping her grandmother on the farm. Harry’s computer
is broken. He can repair it himself in one hour. Quinn can repair it in 10 hours. Harry’s opportunity cost of repairing the
computer is lower than Quinn’s.
a.
True
b.
False
22. If one producer has the absolute advantage in the production of all goods, then that same producer will have the
comparative advantage in the production of all goods as well.
a.
True
b.
False
23. If a country has the comparative advantage in producing a product, then that country must also have the absolute
advantage in producing that product.
a.
True
b.
False
24. In an economy consisting of two people producing two goods, it is possible for one person to have the absolute
advantage and the comparative advantage in both goods.
a.
True
b.
False
25. If one producer is able to produce a good at a lower opportunity cost than some other producer, then the producer with
the lower opportunity cost is said to have an absolute advantage in the production of that good.
a.
True
b.
False
26. Unless two people who are producing two goods have exactly the same opportunity costs, then one person will have a
comparative advantage in one good, and the other person will have a comparative advantage in the other good.
a.
True
b.
False
27. When there are two people and each is capable of producing two goods, it is possible for one person to have a
comparative advantage over the other in both goods.
a.
True
b.
False
28. Zora can produce 4 quilts in a week and she can produce 1 corporate website in a week. Lou can produce 9 quilts in a
week and he can produce 2 corporate websites in a week. Zora has the comparative advantage in quilts and the absolute
advantage in neither good, while Lou has the comparative advantage in corporate websites and the absolute advantage in
both goods.
a.
True
b.
False
29. Timmy can edit 2 pages in one minute and he can type 80 words in one minute. Olivia can edit 1 page in one minute
and she can type 100 words in one minute. Timmy has an absolute advantage and a comparative advantage in editing,
while Olivia has an absolute advantage and a comparative advantage in typing.
a.
True
b.
False
30. Suppose Hank and Tony can both produce corn. If Hank’s opportunity cost of producing a bushel of corn is 2 bushels
of soybeans and Tony’s opportunity cost of producing a bushel of corn is 3 bushels of soybeans, then Hank has the
comparative advantage in the production of corn.
a.
True
b.
False
31. It takes Anne 3 hours to make a pie and 4 hours to make a shirt. It takes Mary 2 hours to make a pie and 5 hours to
make a shirt. Anne should specialize in making shirts and Mary should specialize in making pies, and they should trade.
a.
True
b.
False
32. In one month, Moira can knit 2 sweaters or 4 scarves. In one month, Tori can knit 1 sweater or 3 scarves. Together,
they could produce more output in total if Moira knits only sweaters and Tori knits only scarves.
a.
True
b.
False
33. Ellie and Brendan both produce apple pies and vanilla ice cream. If Ellie’s opportunity cost of one apple pie is 1/2
gallon of ice cream and Brendan’s opportunity cost of one apple pie is 1/4 gallon of ice cream, Ellie has a comparative
advantage in the production of ice cream.
a.
True
b.
False
34. The principle of comparative advantage states that, regardless of the price at which trade takes place, everyone will
benefit from trade if they specialize in the production of the good for which they have a comparative advantage.
a.
True
b.
False
35. The gains from specialization and trade are based on absolute advantage.
a.
True
b.
False
36. Trade can benefit everyone in society because it allows people to specialize in activities in which they have a
comparative advantage.
a.
True
b.
False
37. Two countries can achieve gains from trade even if one country has an absolute advantage in the production of both
goods.
a.
True
b.
False
38. It takes Ross 6 hours to produce a bushel of corn and 2 hours to wash and polish a car. It takes Courtney 6 hours to
produce a bushel of corn and 1 hour to wash and polish a car. Courtney and Ross cannot gain from specialization and
trade, since it takes each of them 6 hours to produce 1 bushel of corn.
a.
True
b.
False
39. Fred trades 2 tomatoes to Barney in exchange for 1 pumpkin. Fred and Barney both gain from the exchange. We can
conclude that, for Barney, the opportunity cost of producing 1 pumpkin is greater than 2 tomatoes.
a.
True
b.
False
40. Differences in opportunity cost allow for gains from trade.
a.
True
b.
False
41. As long as two people have different opportunity costs, each can gain from trade with the other, since trade allows
each person to obtain a good at a price lower than his or her opportunity cost.
a.
True
b.
False
42. Trade allows a person to obtain goods at prices that are less than that person’s opportunity cost because each person
specializes in the activity for which he or she has the lower opportunity cost.
a.
True
b.
False
43. Specialization and trade can make everyone better off if a person can obtain goods at prices that are less than that
person’s opportunity cost.
a.
True
b.
False
44. When each person specializes in producing the good in which he or she has a comparative advantage, each person can
gain from trade but total production in the economy is unchanged.
a.
True
b.
False
45. For both parties to gain from trade, the price at which they trade must lie exactly in the middle of the two opportunity
costs.
a.
True
b.
False
46. For both parties to gain from trade, the price at which they trade must lie between the two opportunity costs.
a.
True
b.
False
47. Ellie and Brendan both produce apple pies and vanilla ice cream. If Ellie’s opportunity cost of one apple pie is 1/2
gallon of ice cream and Brendan’s opportunity cost of one apple pie is 1/4 gallon of ice cream, a mutually advantageous
trade can be struck at a price of one apple pie for 1/3 gallon of ice cream.
a.
True
b.
False
48. Adam Smith was the author of the 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations.
a.
True
b.
False
49. David Ricardo was the author of the 1817 book Principles of Political Economy and Taxation.
a.
True
b.
False
50. Adam Smith wrote that a person should never attempt to make at home what it will cost him more to make than to
buy.
a.
True
b.
False
51. Adam Smith developed the theory of comparative advantage as we know it today.
a.
True
b.
False
52. If US workers can produce everything in less time than Mexican workers, it is not possible for the US to gain from
trade with Mexico.
a.
True
b.
False
53. Goods produced abroad and sold domestically are called exports and goods produced domestically and sold abroad are
called imports.
a.
True
b.
False
54. International trade may make some individuals in a nation better off, while other individuals are made worse off.
a.
True
b.
False
55. For international trade to benefit a country, it must benefit all citizens of that country.
a.
True
b.
False
56. Some countries win in international trade, while other countries lose.
a.
True
b.
False
57. If a country has a lower opportunity cost than its potential trading partner, the country should decide to be self-
sufficient.
a.
True
b.
False
58. International trade can make some individuals within a country worse off, even as it makes the country as a whole
better off.
a.
True
b.
False
59. Trade allows all countries to achieve greater prosperity.
a.
True
b.
False
60. The production possibilities frontier (PPF) depicts the combinations of goods that provides society with the maximum
possible benefit.
a.
True
b.
False
61. The production possibilities frontier (PPF) illustrates the combinations of goods that society can consume when
trading with other producers.
a.
True
b.
False
62. Whenever a country has an absolute advantage in the production of a good, that implies that the country should
specialize in the production of that good.
a.
True
b.
False
63. Trade between nations is based on absolute advantage, which occurs when a country has a lower opportunity cost of
producing a good.
a.
True
b.
False
64. If a country has a higher opportunity cost to produce a good, that means that this country can never possess a
comparative advantage in the production of any good.
a.
True
b.
False
65. Trade can only benefit a nation if that nation has an absolute advantage in the production of that good.
a.
True
b.
False
66. Trade does not benefit a nation if that nation has a comparative advantage in the production of that good.
a.
True
b.
False
67. When it is said that trade between nations can make both sides of the trade better off, this means that all citizens in
each nation will benefit.
a.
True
b.
False
68. Whenever a nation is producing on its PPF, that nation will be using all of its available resources.
a.
True
b.
False
69. A country can have a comparative advantage in the production of a good, even if it does not have an absolute
advantage in the production of that good.
a.
True
b.
False
