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Interdependence and the Gains from Trade 687
245.
Which of the following is not correct?
a.
Economists are generally united in their support of free trade.
b.
The conclusions of Adam Smith and David Ricardo on the gains from trade have held up well
over time.
c.
David Ricardo argued that Britain should not restrict imports of grain.
d.
Economists’ opposition to trade restrictions is still based largely on the principle of absolute
advantage.
246.
Economists generally support
a.
trade restrictions.
b.
government management of trade.
c.
export subsidies.
d.
free international trade.
688 Interdependence and the Gains from Trade
Multiple Choice – Section 02B: Comparative Advantage: The Driving Force of Specialization
Table 3-34
Assume that Indonesia and India can switch between producing rice and bananas at a constant
rate.
Labor Hours Needed
to Make 1 Unit of
Number of Units
Produced in 40 Hours
Rice
Bananas
Rice
Bananas
Indonesia
2
5
20
8
India
4
2
10
20
1.
Refer to Table 3-34. Indonesia’s opportunity cost of producing bananas is
a.
2.5 units of rice. This is higher than India’s opportunity cost of producing bananas.
b.
2.5 units of rice. This is lower than India’s opportunity cost of producing bananas.
c.
2/5 units of rice. This is higher than India’s opportunity cost of producing bananas.
d.
2/5 units of rice. This is lower than India’s opportunity cost of producing bananas.
2.
Refer to Table 3-34. India’s opportunity cost of producing rice is
a.
1/2 units of bananas. This is higher than Indonesia’s opportunity cost of producing rice.
b.
1/2 units of bananas. This is lower than Indonesia’s opportunity cost of producing rice.
c.
2 units of bananas. This is higher than Indonesia’s opportunity cost of producing rice.
d.
2 units of bananas. This is lower than Indonesia’s opportunity cost of producing rice.
3.
Refer to Table 3-34. For which good(s) does Indonesia have a comparative advantage
a.
rice and bananas.
b.
rice but not bananas.
c.
bananas but not rice.
d.
nether rice nor bananas.
4.
Refer to Table 3-34. At which of the following prices, if any, can India and Indonesia both gain
from trade?
a.
1/5 units of bananas per unit of rice.
b.
1/3 units of bananas per unit of rice.
c.
3/5 units of bananas per unit of rice.
d.
None of the above.
Table 3-35
Labor Hours Needed
to Produce
1 Dozen Eggs
1 Pound Ham
Denmark
10
8
Finland
6
4
5.
Refer to Table 3-35. Denmark’s opportunity cost of producing 1dozen eggs is
a.
5/4 pounds of ham. This is higher than Finland’s opportunity cost of producing 1dozen eggs.
b.
5/4 pounds of ham. This is lower than Finland’s opportunity cost of producing 1 dozen eggs.
c.
4/5 pounds of ham. This is higher than Finland’s opportunity cost of producing 1 dozen eggs.
d.
4/5 pounds of ham. This is lower than Finland’s opportunity cost of producing 1 dozen eggs.
6.
Refer to Table 3-35. Finland’s opportunity cost of producing 1 unit of ham is
a.
3/2 dozen eggs. This is higher than Denmark’s opportunity cost.
b.
3/2 dozen eggs. This is lower than Denmark’s opportunity cost.
c.
2/3 dozen eggs. This is higher than Denmark’s opportunity cost.
d.
2/3 dozen eggs. This is lower than Denmark’s opportunity cost.
7.
Refer to Table 3-35. Which good(s) does Denmark have an absolute advantage producing?
a.
both eggs and ham.
b.
eggs but not ham.
c.
ham but not eggs.
d.
neither ham nor eggs.
8.
Refer to Table 3-35. Which good(s) does Finland have an absolute advantage producing?
a.
both eggs and ham.
b.
eggs but not ham.
c.
ham but not eggs.
d.
neither ham nor eggs.
9.
Refer to Table 3-35. At which of the following prices, if any, could both Denmark and Finland
gain from trade?
a.
2/3 pounds of ham per dozen eggs.
b.
1 pound of ham per dozen eggs.
c.
1.4 pounds of ham per dozen eggs.
d.
None of the above are correct.
Figure 3-24
The production possibilities frontiers below show how much Bob and Betty can each produce in 8
hours of time.
Bob’s Production Possibilities Frontier Betty’s Production Possibilities Frontier
10.
Refer to Figure 3-24. Bob has
a.
an absolute and comparative advantage producing good x.
b.
an absolute but not a comparative advantage producing good x.
c.
a comparative but not an absolute advantage producing good x.
d.
neither a comparative nor an absolute advantage producing good x.
11.
Refer to Figure 3-24. Betty has
a.
an absolute and comparative advantage producing good x.
b.
an absolute but not a comparative advantage producing good x.
c.
a comparative but not an absolute advantage producing good x.
d.
neither a comparative nor an absolute advantage producing good x.
Table 3-36
Minutes Needed
to Make 1
Towel
Umbrella
Antigua
12
20
Barbuda
15
10
12.
Refer to Table 3-36. What is Antigua’s opportunity cost of one towel?
a.
3/5 umbrellas
b.
2/3 umbrellas
c.
3/2 umbrellas
d.
5/3 umbrellas
13.
Refer to Table 3-36. What is Antigua’s opportunity cost of one umbrella?
a.
3/5 towels
b.
2/3 towels
c.
3/2 towels
d.
5/3 towels
14.
Refer to Table 3-36. What is Barbuda’s opportunity cost of one towel?
a.
3/5 umbrellas
b.
2/3 umbrellas
c.
3/2 umbrellas
d.
5/3 umbrellas
15.
Refer to Table 3-36. What is Barbuda’s opportunity cost of one umbrella?
a.
3/5 towels
b.
2/3 towels
c.
3/2 towels
d.
5/3 towels
16.
Refer to Table 3-36. Antigua has an absolute advantage in the production of
a.
towels and Barbuda has an absolute advantage in the production of umbrellas.
b.
umbrellas and Barbuda has an absolute advantage in the production of towels.
c.
both goods and Barbuda has an absolute advantage in the production of neither good.
d.
neither good and Barbuda has an absolute advantage in the production of both goods.
17.
Refer to Table 3-36. Antigua has a comparative advantage in the production of
a.
towels and Barbuda has a comparative advantage in the production of umbrellas.
b.
umbrellas and Barbuda has a comparative advantage in the production of towels.
c.
both goods and Barbuda has a comparative advantage in the production of neither good.
d.
neither good and Barbuda has a comparative advantage in the production of both goods.
18.
Refer to Table 3-36. If Antigua and Barbuda decide to trade with each other, Antigua should
specialize in the
production of
a.
towels and Barbuda should specialize in the production of umbrellas.
b.
umbrellas and Barbuda should specialize in the production of towels.
c.
both goods and Barbuda should specialize in the production of neither good.
d.
neither good and Barbuda should specialize in the production of both goods.
19.
Refer to Table 3-36. Assume that Antigua and Barbuda each has 60 minutes available. If each
island spends all its
time producing the good in which it has a comparative advantage, then total
production is
a.
4 towels and 3 umbrellas.
b.
5 towels and 6 umbrellas.
c.
8 towels and 10 umbrellas.
d.
9 towels and 9 umbrellas.
698 Interdependence and the Gains from Trade
Multiple Choice – Section 03: Applications of Comparative Advantage
1.
By definition, imports are
a.
people who work in foreign countries.
b.
goods in which a country has an absolute advantage.
c.
limits placed on the quantity of goods leaving a country.
d.
goods produced abroad and sold domestically.
2.
By definition, exports are
a.
limits placed on the quantity of goods brought into a country.
b.
goods in which a country has an absolute advantage.
c.
people who work in foreign countries.
d.
goods produced domestically and sold abroad.
3.
Goods produced abroad and sold domestically are called
a.
exports.
b.
imports.
c.
exchange rates.
d.
opportunity costs.
4.
Trade between countries
a.
allows each country to consume at a point outside its production possibilities frontier.
b.
limits a country’s ability to produce goods and services on its own.
c.
must benefit both countries equally; otherwise, trade is not mutually beneficial.
d.
can best be understood by examining the countries’ absolute advantages.
5.
When a country has a comparative advantage in producing a certain good,
a.
the country should import that good.
b.
the country should produce just enough of that good for its own consumption.
c.
the country’s opportunity cost of that good is high relative to other countries’ opportunity costs
of that same good.
d.
None of the above is correct.
6.
Which of the following would not result from all countries specializing according to the principle of
comparative
advantage?
a.
The size of the economic pie would increase.
b.
Worldwide production of goods and services would increase.
c.
The well-being of citizens in each country would be enhanced.
d.
Each country’s production possibilities frontier would shift inward.
7.
A country that currently does not trade with other countries could benefit by
a.
restricting imports and promoting exports.
b.
promoting imports and restricting exports.
c.
restricting both imports and exports.
d.
not restricting trade.
8.
Suppose the United States has a comparative advantage over Mexico in producing pork. The
principle of
comparative advantage asserts that
a.
the United States should produce more pork than what it requires and export some of it to
Mexico.
b.
the United States should produce a moderate quantity of pork and import the remainder of what
it requires
from Mexico.
c.
the United States should refrain altogether from producing pork and import all of what it requires
from
Mexico.
d.
Mexico has nothing to gain from importing United States pork.
9.
Belarus has a comparative advantage in the production of linen, but Russia has an absolute
advantage in the
production of linen. If these two countries decide to trade,
a.
Belarus should export linen to Russia.
b.
Russia should export linen to Belarus.
c.
trading linen would provide no net advantage to either country.
d.
Without additional information about opportunity costs, this question cannot be answered.
10.
Suppose that a worker in Boatland can produce either 5 units of wheat or 25 units of fish per
year, and a worker in
Farmland can produce either 25 units of wheat or 5 units of fish per year.
There are 10 workers in each country.
Political pressure from the fish lobby in Farmland and
from the wheat lobby in Boatland has prevented trade
between the two countries on the grounds
that cheap imports would kill the fish industry in Farmland and the wheat
industry in Boatland. As
a result, Boatland produces and consumes 25 units of wheat and 125 units of fish per year
while
Farmland produces and consumes 125 units of wheat and 25 units of fish per year. If the political
pressure
were overcome and trade were to occur, each country would completely specialize in the
product in which it has a
comparative advantage. If trade were to occur, the combined output of
the two countries would increase by
a.
25 units of wheat and 25 units of fish.
b.
50 units of wheat and 50 units of fish.
c.
75 units of wheat and 75 units of fish.
d.
100 units of wheat and 100 units of fish.
11.
Suppose that a worker in Boatland can produce either 5 units of wheat or 25 units of fish per
year, and a worker in
Farmland can produce either 25 units of wheat or 5 units of fish per year.
There are 30 workers in each country. No
trade occurs between the two countries. Boatland
produces and consumes 75 units of wheat and 375 units of fish
per year while Farmland produces
and consumes 375 units of wheat and 75 units of fish per year. If trade were to
occur, Boatland
would trade 90 units of fish to Farmland in exchange for 80 units of wheat. If Boatland now
completely specializes in fish production, how many units of fish could it now consume along with
the 80 units of
imported wheat?
a.
490 units
b.
500 units
c.
610 units
d.
660 units
12.
In which of the following cases should the United States produce more noodles than it wants for
its own use and
trade some of those noodles to Italy in exchange for wine?
a.
Americans know less than Italians know about cooking noodles.
b.
The United States has an absolute advantage over Italy in producing noodles.
c.
Italy has a comparative advantage over the United States in producing wine.
d.
The opportunity cost of producing a gallon of wine is the same for Italy as it is for the United
States.
13.
Suppose the U.S. and Japan can both produce airplanes and televisions and the U.S. has a
comparative advantage in
the production of airplanes while Japan has a comparative advantage in
the production of televisions. Also suppose
the U.S. has an absolute advantage in the production
of both airplanes and televisions. The U.S. should
a.
not trade airplanes or televisions with Japan.
b.
import airplanes from Japan and export televisions to Japan.
c.
export airplanes to Japan and import televisions from Japan.
d.
export both airplanes and televisions to Japan.
14.
Suppose the U.S. and Japan both produce airplanes and televisions and the U.S. has a
comparative advantage in the
production of airplanes while Japan has a comparative advantage in
the production of televisions. If the U.S. exports
airplanes to Japan and imports televisions from
Japan,
a.
both countries, as a whole, will be better off.
b.
all individuals in both countries will be better off.
c.
both countries, as a whole, will be worse off.
d.
all individuals in both countries will be worse off.
15.
Tom Brady should pay someone else to mow his lawn instead of mowing it himself, unless
a.
Brady has an absolute advantage over everyone else in mowing his lawn.
b.
Brady has a comparative advantage over everyone else in mowing his lawn.
c.
Brady’s opportunity cost of mowing his lawn is higher than it is for everyone else.
d.
All of the above are correct.
16.
Tom Brady should probably not mow his own lawn because
a.
his opportunity cost of mowing his lawn is higher than the cost of paying someone to mow it for
him.
b.
he has a comparative advantage in mowing his lawn relative to a landscaping service.
c.
he has an absolute advantage in mowing his lawn relative to a landscaping service.
d.
he might sprain his ankle.
17.
When two countries trade with one another, it is most likely because
a.
the wealthy people in each of the two countries are able to benefit, through trade, by taking
advantage of
other people who are poor.
b.
some people involved in the trade do not understand that one of the two countries will become
worse-off
because of the trade.
c.
the opportunity costs of producing various goods are identical for the two countries.
d.
the two countries wish to take advantage of the principle of comparative advantage.
Table 3-37
Assume that Aruba and Iceland can switch between producing coolers and producing radios at a
constant rate.
Labor Hours
Needed to Make 1
Cooler
Radio
Aruba
2
5
Iceland
1
4
18.
Refer to Table 3-37. Aruba should export
a.
coolers and import radios.
b.
radios and import coolers.
c.
both goods and import neither good.
d.
neither good and import both goods.
