Interdependence and the Gains from Trade 667
207.
Refer to Figure 3-21. Suppose Uzbekistan decides to increase its production of bolts by 10.
What is the
opportunity cost of this decision?
a.
1/2 nail
b.
2 nails
c.
5 nails
d.
20 nails
208.
Refer to Figure 3-21. Suppose Azerbaijan decides to increase its production of nails by 20.
What is the
opportunity cost of this decision?
a.
1/4 bolt
b.
4 bolts
c.
5 bolts
d.
80 bolts
209.
Refer to Figure 3-21. Suppose Azerbaijan is willing to trade 3 nails to Uzbekistan for every
bolt that Uzbekistan
makes and sends to Azerbaijan. Which of the following combinations of
bolts and nails could Azerbaijan then
consume, assuming Uzbekistan specializes in making bolts
and Azerbaijan specializes in making nails?
a.
8 bolts and 56 nails
b.
14 bolts and 44 nails
c.
18 bolts and 32 nails
d.
20 bolts and 26 nails
210.
Refer to Figure 3-21. Suppose Azerbaijan is willing to trade 3 nails to Uzbekistan for every
bolt that Uzbekistan
makes and sends to Azerbaijan. Which of the following combinations of
bolts and nails could Uzbekistan then
consume, assuming Uzbekistan specializes in making bolts
and Azerbaijan specializes in making nails?
a.
7 bolts and 70 nails
b.
12 bolts and 56 nails
c.
17 bolts and 40 nails
d.
25 bolts and 15 nails
211.
Refer to Figure 3-21. Azerbaijan has an absolute advantage in the production of
a.
bolts and a comparative advantage in the production of bolts.
b.
bolts and a comparative advantage in the production of nails.
c.
nails and a comparative advantage in the production of bolts.
d.
nails and a comparative advantage in the production of nails.
212.
Refer to Figure 3-21. If Uzbekistan and Azerbaijan switch from each country dividing its time
equally between
the production of bolts and nails to each country spending all of its time producing
the good in which it has a
comparative advantage, then total production will increase by
a.
5 bolts and 10 nails.
b.
15 bolts and 40 nails.
c.
20 bolts and 50 nails.
d.
30 bolts and 80 nails.
213.
Refer to Figure 3-21. If Uzbekistan and Azerbaijan each spends all its time producing the
good in which it has a
comparative advantage and trade takes place at a price of 12 bolts for 36
nails, then
a.
neither Uzbekistan nor Azerbaijan will gain from this trade.
b.
Uzbekistan will gain from this trade, but Azerbaijan will not.
c.
Azerbaijan will gain from this trade, but Uzbekistan will not.
d.
both Uzbekistan and Azerbaijan will gain from this trade.
214.
Refer to Figure 3–21. Without trade, Uzbekistan produced and consumed 12 bolts and 36 nails
and Azerbaijan
produced and consumed 14 bolts and 24 nails. Then, each country agreed to
specialize in the production of the good
in which it has a comparative advantage and trade 16
bolts for 38 nails. As a result, Uzbekistan gained
a.
2 bolts and 2 nails and Azerbaijan gained 2 bolts and 18 nails.
b.
4 bolts and 2 nails and Azerbaijan gained 2 bolts and 14 nails.
c.
14 bolts and 38 nails and Azerbaijan gained 16 bolts and 42 nails.
d.
16 bolts and 38 nails and Azerbaijan gained 16 bolts and 38 nails.
Interdependence and the Gains from Trade 671
Figure 3-22
Alice and Betty’s Production Possibilities in one 8-hour day.
Alice’s Production Possibilities Frontier Betty’s Production Possibilities Frontier
215.
Refer to Figure 3-22. What are Alice and Betty’s opportunity costs of 1 pizza?
a.
Alice’s opportunity cost of 1 pizza is 1/2 of a pitcher of lemonade and Betty’s opportunity cost
of 1 pizza is 2/3 of a pitcher of lemonade.
b.
Alice’s opportunity cost of 1 pizza is 1 pitcher of lemonade and Betty’s opportunity cost of 1
pizza is 3 pitchers of lemonade.
c.
Alice’s opportunity cost of 1 pizza is 2 pitchers of lemonade and Betty’s opportunity cost of 1
pizza is 1.5 pitchers of lemonade.
d.
Alice’s opportunity cost of 1 pizza is 400 pitchers of lemonade and Betty’s opportunity cost of
1 pizza is 450 pitchers of lemonade.
216.
Refer to Figure 3-22. What are Alice and Betty’s opportunity costs of 1 pitcher of lemonade?
a.
Alice’s opportunity cost of 1 pitcher of lemonade is 1/2 of a pizza and Betty’s opportunity cost
of 1 pitcher of lemonade is 2/3 of a pizza.
b.
Alice’s opportunity cost of 1 pitcher of lemonade is 2 pizzas and Betty’s opportunity cost of 1
pitcher of lemonade is 1.5 pizzas.
c.
Alice’s opportunity cost of 1 pitcher of lemonade is 10 pizzas and Betty’s opportunity cost of
1 pitcher of lemonade is 10 pizzas.
d.
Alice’s opportunity cost of 1 pitcher of lemonade is 200 pizzas and Betty’s opportunity cost of
1 pitcher of lemonade is 300 pizzas.
217.
Refer to Figure 3–22. Which of the following statements is correct regarding absolute
advantage?
a.
Alice has an absolute advantage in the production of both lemonade and pizzas.
b.
Betty has an absolute advantage in the production of both lemonade and pizzas.
c.
Alice has an absolute advantage in the production of pizzas while Betty has an absolute
advantage in the
production of lemonade.
d.
Alice has an absolute advantage in the production of lemonade while Betty has an absolute
advantage in the
production of pizzas.
218.
Refer to Figure 3-22. Which of the following statements is correct regarding comparative
advantage?
a.
Alice has a comparative advantage in the production of both lemonade and pizzas.
b.
Betty has a comparative advantage in the production of both lemonade and pizzas.
c.
Alice has a comparative advantage in the production of pizzas while Betty has a comparative
advantage in
the production of lemonade.
d.
Alice has a comparative advantage in the production of lemonade while Betty has a
comparative advantage
in the production of pizzas.
219.
Refer to Figure 3-22. Which of the following prices would result in an mutually advantageous
trade for Alice and
Betty?
a.
100 pizzas for 100 pitchers of lemonade
b.
100 pizzas for 125 pitchers of lemonade
c.
100 pizzas for 180 pitchers of lemonade
d.
100 pizzas for 220 pitchers of lemonade
674 Interdependence and the Gains from Trade
Table 3-31
Labor Hours Needed to
Make 1
Pound of:
Amount
Produced in 40 hours
Meat
Potatoes
Meat
Potatoes
Farmer
8 hours/pound
5 hours/pound
5 pounds
8 pounds
Rancher
4 hours/pound
10 hours/pound
10 pounds
4 pounds
220.
Refer to Table 3-31. For the farmer, the opportunity cost of 1 pound of meat is
a.
0.625 pound of potatoes.
b.
1.6 pounds of potatoes.
c.
5 pounds of potatoes.
d.
8 pounds of potatoes.
221.
Refer to Table 3–31. For the farmer, the opportunity cost of 15 pounds of meat is
a.
12 pounds of potatoes.
b.
16 pounds of potatoes.
c.
20 pounds of potatoes.
d.
24 pounds of potatoes.
222.
Refer to Table 3–31. For the rancher, the opportunity cost of 1 pound of meat is
a.
0.4 pound of potatoes.
b.
2.5 pounds of potatoes.
c.
4 pounds of potatoes.
d.
10 pounds of potatoes.
223.
Refer to Table 3-31. For the rancher, the opportunity cost of 16 pounds of meat is
a.
4.0 pounds of potatoes.
b.
5.2 pounds of potatoes.
c.
6.4 pounds of potatoes.
d.
9.6 pounds of potatoes.
224.
Refer to Table 3-31. For the farmer, the opportunity cost of 1 pound of potatoes is
a.
0.625 pound of meat.
b.
1.0 pounds of meat.
c.
1.6 pounds of meat.
d.
3.2 pounds of meat.
225.
Refer to Table 3-31. For the farmer, 12.8 pounds of
a.
meat is the opportunity cost of 10.6 pounds of potatoes.
b.
meat is the opportunity cost of 16.0 pounds of potatoes.
c.
potatoes is the opportunity cost of 6.8 pounds of meat.
d.
potatoes is the opportunity cost of 8.0 pounds of meat.
226.
Refer to Table 3-31. In 10 hours,
a.
the rancher could produce 2.5 pounds of meat and 1.0 pound of potatoes.
b.
the rancher could produce 1.0 pound of meat and 1.0 pound of potatoes.
c.
the farmer could produce 0.25 pounds of meat and 1.6 pounds of potatoes.
d.
the farmer could produce 0.75 pounds of meat and 1.25 pounds of potatoes.
227.
Refer to Table 3-31. Relative to the farmer, the rancher has an absolute advantage in the
production of
a.
meat, but not in the production of potatoes.
b.
potatoes, but not in the production of meat.
c.
both meat and potatoes.
d.
neither meat nor potatoes.
228.
Refer to Table 3-31. Relative to the rancher, the farmer has a comparative advantage in the
production of
a.
meat, but not in the production of potatoes.
b.
potatoes, but not in the production of meat.
c.
both meat and potatoes.
d.
neither meat nor potatoes.
229.
Refer to Table 3-31. Relative to the rancher, the farmer has
a.
a comparative advantage in the production of meat, because the farmer’s opportunity cost of
a pound of
meat is lower than the rancher’s opportunity cost of a pound of meat.
b.
a comparative advantage in the production of potatoes, because the rancher requires less time
than the
farmer to produce a pound of potatoes.
c.
a comparative advantage in the production of potatoes; relative to the farmer, the rancher has
a comparative
advantage in the production of meat.
d.
an absolute advantage in the production of both meat and potatoes.
Interdependence and the Gains from Trade 679
Figure 3-23
The graph below represents the various combinations of ham and cheese (in pounds) that the
nation of Bonovia
could produce in a given month.
230.
Refer to Figure 3-23. For Bonovia, what is the opportunity cost of a pound of cheese?
a.
0.8 pounds of ham
b.
1.25 pounds of ham
c.
8 pounds of ham
d.
16 pounds of ham
231.
Refer to Figure 3-23. Whenever Bonovia increases its production of ham by 1 pound per
month, then it must
decrease its production of cheese by
a.
0.75 pound.
b.
0.80 pound.
c.
1.00 pounds.
d.
1.25 pounds.
232.
Refer to Figure 3-23. The nation of Cropitia has a comparative advantage over Bonovia in
producing ham if
a.
Cropitia can produce more than 400 pounds of ham per month.
b.
Cropitia can produce more than 320 pounds of cheese per month.
c.
Cropitia’s opportunity cost of producing a pound of ham is less than 0.8 pounds of cheese.
d.
Cropitia’s opportunity cost of producing a pound of ham is greater than 0.8 pounds of cheese.
233.
Refer to Figure 3-23. In the nation of Cropitia, the opportunity cost of a pound of cheese is 1.5
pounds of ham. Bonovia and Cropitia both can gain from trading with one another if one pound
of cheese trades for
a.
1.0 pound of ham.
b.
1.4 pounds of ham.
c.
2.1 pounds of ham.
d.
All of the above are correct.
234.
Refer to Figure 3-23. In the nation of Cropitia, the opportunity cost of a pound of ham is 0.3
pounds of cheese. Bonovia and Cropitia both can gain from trading with one another if one
pound of ham trades for
a.
0.40 pounds of cheese.
b.
0.55 pounds of cheese.
c.
0.75 pounds of cheese.
d.
All of the above are correct.
Table 3-32
US and French Production Opportunities
Wine (in millions of gallons)
Cheese (in millions of lbs.)
US
16
32
France
8
4
235.
Refer to Table 3-32 The US has a comparative advantage in the production of
a.
wine.
b.
cheese.
c.
both wine and cheese.
d.
neither wine nor cheese.
236.
Refer to Table 3-32 France has an absolute advantage in the production of
a.
wine.
b.
cheese.
c.
both wine and cheese.
d.
neither wine nor cheese.
237.
Refer to Table 3-32 The opportunity costs for the US and France are as follows:
a.
In the US 1 million gallons of wine costs 1/2 million pounds of cheese and in France 1 million
gallons of wine
costs 2 million pounds of cheese.
b.
In the US 1 million gallons of wine costs 2 million pounds of cheese and in France 1 million
gallons of wine
costs 1/2 million pounds of cheese.
c.
In the US 1 million pounds of cheese costs 1/2 million gallons of wine and in France 1 million
pounds of
cheese costs 2 million gallons of wine.
d.
In the US 1 million pounds of cheese costs 16 million gallons of wine and in France 1 million
pounds of
cheese costs 8 million gallons of wine.
Table 3-33
Chris and Tony’s Production Opportunities
Tomatoes
Pasta Sauce
Chris
10 lbs
300 jars
Tony
14 lbs
280 jars
238.
Refer to Table 3-33 Chris and Tony both produce tomatoes and pasta sauce. The table shows
their possible
production per month if both work the same number of 8 hour days. Given this
information, Chris’s opportunity cost
of 1 lb. of tomatoes is
a.
2 jars of sauce and Tony’s opportunity cost of 1 lb. of tomatoes is 3 jars of sauce.
b.
3 jars of sauce and Tony’s opportunity cost of 1 lb. of tomatoes is 2 jars of sauce.
c.
20 jars of sauce and Tony’s opportunity cost of 1 lb. of tomatoes is 30 jars of sauce.
d.
30 jars of sauce and Tony’s opportunity cost of 1 lb. of tomatoes is 20 jars of sauce.
239.
Refer to Table 3-33 Chris and Tony both produce tomatoes and pasta sauce. The table shows
their possible
production per month if both work the same number of 8 hour days. If Chris and
Tony both decide to specialize and
produce only the good in which they have a comparative
advantage, then
a.
Chris will produce only sauce and Tony will produce only tomatoes.
b.
Chris will produce only tomatoes and Tony will produce only sauce.
c.
Both Chris and Tony will produce only sauce.
d.
Both Chris and Tony will produce only tomatoes.
240.
Refer to Table 3-33 Chris and Tony both produce tomatoes and pasta sauce. The table shows
their possible
production per month if both work the same number of 8 hour days. Which of the
following statements is correct?
a.
Tony has a comparative advantage in the production of sauce.
b.
Chris has a comparative advantage in the production of tomatoes.
c.
Tony has an absolute advantage in the production of tomatoes.
d.
Chris has an absolute advantage in the production of tomatoes.
241.
Refer to Table 3-33 Chris and Tony both produce tomatoes and pasta sauce. The table shows
their possible
production per month if both work the same number of 8 hour days. Which of the
following prices would result in a
mutually advantageous trade between Chris and Tony?
a.
1 lb. of tomatoes for 23 jars of sauce
b.
1 lb. of tomatoes for 27 jars of sauce
c.
1 lb. of tomatoes for 33 jars of sauce
d.
Both a and b are correct.
242.
Adam Smith
a.
and David Ricardo both opposed free trade.
b.
opposed free trade, but David Ricardo supported it.
c.
supported free trade, but David Ricardo opposed it.
d.
and David Ricardo both supported free trade.
243.
Adam Smith asserted that a person should never attempt to make at home
a.
what it will cost him more to make than to buy.
b.
any good in which that person does not have an absolute advantage.
c.
any luxury good.
d.
any necessity.
244.
Which famous economist developed the principle of comparative advantage as we know it
today?
a.
Adam Smith
b.
David Ricardo
c.
John Maynard Keynes
d.
Milton Friedman