A. No; Southland does at least as well at producing both, so it would have no incentive to trade.
B. Yes; they could gain 75 bananas and 60 apples.
C. Yes; they could gain up to 60 apples without losing bananas
D. Yes; they could gain up to 15 bananas without losing apples.
75. Refer to the graph shown.
Suppose Country X exports agricultural goods to Country Y in exchange for industrial goods.
This pattern of trade increases consumption in both countries only if:
A. X and Y share production possibility curve A.
B. X’s production possibility curve is B and Y’s is A.
C. X’s production possibility curve is A and Y’s is B.
D. X and Y share production possibility curve B.
76. Refer to the graph shown.
If Countries X and Y face the production possibility curves A and B, respectively, Country X has
a comparative advantage in the production of:
A. neither agricultural goods nor industrial goods.
B. both agricultural goods and industrial goods.
C. agricultural goods only.
D. industrial goods only.
77. Refer to the graph shown.
If Countries X and Y face the production possibility curves A and B, respectively, Country Y has
a comparative advantage in the production of:
A. neither agricultural goods nor industrial goods.
B. both agricultural goods and industrial goods.
C. agricultural goods only.
D. industrial goods only.
78. Up through the early decades of the 20th century, many countries remained closed to trade,
charging high tariffs or imposing strict quotas on imported goods. In 1948, 23 countries joined
the General Agreement on Tariffs and Trade (GATT), which sought to set out rules for trade and
enhance future negotiations. The reduction in tariffs as a result of GATT probably brought about:
A. a decrease in consumption.
B. an increase in consumption.
C. no change in consumption.
D. a reduction in domestic production.
79. John can clean the house in three hours and do the laundry in four. Jane can clean the house
in two hours or do the laundry in two. Can they benefit by specialization and trade?
A. Neither can benefit because John has nothing to offer.
B. John could benefit from an exchange, but Jane cannot because she is better at both.
C. Both can benefit because John has a comparative advantage in laundry.
D. Both can benefit because John has a comparative advantage in cleaning.
80. John and Jane Smith are both economists who are deciding how to split household chores of
cooking and cleaning. They discover that John has a comparative advantage in cooking. Does
this discovery tell them anything about comparative advantage in cleaning?
A. No; both or neither may have a comparative advantage in cleaning.
B. No; either one may have a comparative advantage in cleaning.
C. Yes; John must also have a comparative advantage in cleaning.
D. Yes; Jane must have a comparative advantage in cleaning.
81. Countries gain from trade by producing:
A. the goods they produce at the highest opportunity cost.
B. the goods they can produce at the lowest opportunity cost.
C. where the production possibility curve has a slope of –1.
D. all goods in equal amounts.
82. Trade based on comparative advantage benefits:
A. consumers in all countries.
B. consumers in some countries but hurts consumers in other countries.
C. neither producers nor consumers.
D. producers in all countries but not consumers.
83. The text argues that the United States has had a comparative advantage in goods and
services that:
A. require creativity and innovation.
B. are artistic and well crafted.
C. are mass-produced.
D. are luxury goods.
84. The Apple iPod has been a trendy product. It was designed by Apple in the United States,
manufactured in factories in Asia, and sold throughout the world. Many other firms, both
American and foreign, began to try to develop alternatives to the iPod. The iPod is an example of
American comparative advantage in:
A. innovation.
B. mass production.
C. hand production.
D. consumerism.
85. In China many farmers have switched from producing rice to producing vegetables and fruit
because they can earn a great deal more money from these specialty crops. Within China there
are some who applaud this change, but others worry that China soon may become dependent on
rice imports. Even with the low cost of Chinese labor, does the fact that China is importing rice
suggest that other countries now have a comparative advantage in rice production?
A. No; China must have a comparative advantage in rice if it imports rice.
B. Yes; but only if there are other countries with even cheaper labor.
C. Yes; countries with more expensive labor can offset that cost with abundant land and farm
equipment.
D. Maybe; because rice is a standardized product, the role of innovation and creativity in its
production is important.
86. According to the law of one price,
A. it is illegal to pay different people different amounts for the same work.
B. it is illegal to charge different people different amounts for the same product.
C. competition, combined with transferable goods and resources, drives the prices of similar
goods toward equality.
D. competition, combined with inherent advantages, drives the prices of similar goods toward
equality.
87. Which of the following is an example of the law of one price?
A. Exchange rates tend to have equivalent values. For example, one euro equals one U.S. dollar.
B. Because people have essentially the same basic needs wherever they live, they tend to buy the
same bundle of goods.
C. Because wages are so much lower in China, eventually all U.S. jobs will be outsourced to
China, leaving the United States to import all goods at one price.
D. Because their countries have similar institutions, computer programmers in Germany and the
United States either are or will be paid about the same.
88. Which of the following is an example of the law of one price in action?
A. Prices are just one of the many factors that firms use when deciding where to locate
production.
B. If one county has a comparative advantage in producing a particular good, another country
must have a comparative advantage in producing another good.
C. Wages in India are lower than wages in the United States, and so firms move their call centers
to India. This tends to raise wages in India and depress wages in the United States.
D. Because most industries in the United States are dominated by one or two firms, the dominant
firm sets the price and other firms in the industry follow.
89. Which of the following factors will help the United States regain comparative advantages in
industries in which it has lost comparative advantages?
A. The value of the U.S. dollar falls.
B. The value of the U.S. dollar rises.
C. The United States imports more goods.
D. Wages in the United States rise.
90. The morel is a prized mushroom that is often abundant in the Western United States in years
after forest fires. Suppose two companies are buying morels from workers willing to find them.
One company offers to pay workers $5.00 per pound, and the other company will pay workers
only $4.00 per pound. Economists would say that:
A. the company willing to pay only $4.00 has a comparative advantage in selling morels.
B. the higher-paying company will attract the more creative and innovative pickers and the
lower-paying company will attract the others.
C. the lower-paying company will attract the more creative and innovative pickers and the
higher-paying company will attract the others.
D. this situation violates the law of one price and is not likely to persist.
91. Juan works at Texas Burgers in El Paso and earns $8.00 per hour. His twin brother Felipe
works in Mexico Burgers in Ciudad Juarez just across the border and earns $3.00 per hour for
exactly the same work. An economist looking at this situation sees:
A. an incentive for Felipe to cross the border to get a job and thus reduce the gap.
B. an incentive for Felipe to quit and find another job in Mexico.
C. the tendency of the rich to get richer and the poor to get poorer, widening the gap.
D. evidence that the law of one price has no support in the real world.
92. If U.S. workers are paid $16 an hour and Indian workers are paid the equivalent of $4 an
hour but U.S. workers can produce four times as many goods as Indian workers in the same
amount of time:
A. workers in the United State are paid too much.
B. production will migrate to the United States.
C. production will migrate to India.
D. there is no reason to move production from the United States to India.
93. Adam Smith argued that greater specialization and division of labor are likely to:
A. improve standards of living.
B. reduce standards of living.
C. reduce worker productivity.
D. replace workers with machines, resulting in massive unemployment.
94. If the hourly wage of U.S. workers is $16, the hourly wage of Mexican workers is $2, and
U.S. workers produce 5 times as much output per hour as Mexican workers, then, other things
equal, it would be efficient to locate production facilities in:
A. the United States since the cost per unit of output will be higher.
B. the United States since the cost per unit of output will be lower.
C. Mexico since the cost per unit of output will be higher.
D. Mexico since the cost per unit of output will be lower.
95. If the hourly wage of U.S. workers is $16, the hourly wage of Mexican workers is $2, and
U.S. workers produce 9 times as much output per hour as Mexican workers, then, all else equal,
it would be efficient to locate production facilities in:
A. the United States since the cost per unit of output will be higher.
B. the United States since the cost per unit of output will be lower.
C. Mexico since the cost per unit of output will be higher.
D. Mexico since the cost per unit of output will be lower.
96. If the hourly wage of German workers is $6, the hourly wage of Canadian workers is $10,
and German workers produce half as much output per hour as Canadian workers, all else equal, it
would be efficient to locate production facilities in:
A. Germany since the cost per unit of output will be higher.
B. Germany since the cost per unit of output will be lower.
C. Canada since the cost per unit of output will be higher.
D. Canada since the cost per unit of output will be lower.
97. Refer to the graph below.
Point A represents a price of:
A. 3 and a quantity of 3.
B. 3 and a quantity of 5.
C. 5 and a quantity of 3.
D. 5 and a quantity of 5.
98. If there is a direct relationship between two variables, the graph relating those two variables
will be:
A. upward-sloping.
B. downward-sloping.
C. vertical.
D. horizontal.
99. If there is an inverse relationship between two variables, the graph relating the two variables
will be:
A. upward-sloping.
B. downward-sloping.
C. vertical.
D. horizontal.
100. What kind of relationship exists between the price of gas and the quantity demanded for
gas if the quantity demanded for gas falls when the price of gas increases?
A. direct.
B. inverse.
C. normal.
D. perverse.
101. An inverse relationship occurs between two variables when as one goes:
A. up the other goes up.
B. up the other goes down.
C. up the other does not change.
D. down the other goes down.
102. If the quantity demanded for a good rises as the price falls, the curve representing this
relationship will be:
A. upward-sloping.
B. downward-sloping.
C. horizontal.
D. impossible to determine.
103. The slope of a line is the:
A. value on the vertical axis divided by the value on the horizontal axis.
B. value on the horizontal axis divided by the value on the vertical axis.
C. change in the value on the vertical axis divided by the change in the value on the horizontal
axis.
D. change in the value on the horizontal axis divided by the change in the value on the vertical
axis.
104. The slope of a line is zero when it is:
A. horizontal.
B. vertical.
C. an upward-sloping line that makes a 45 degree angle with the horizontal and vertical axes.
D. a downward-sloping line that makes a 45 degree angle with the horizontal and vertical axes.
105. The slope of a line that is vertical is:
A. zero.
B. 1.
C. infinite.
D. dependent on where it intersects the horizontal axis.
106. A downward-sloping line that makes a 45-degree angle with the horizontal and vertical
axes has a slope of:
A. zero.
B. 1.
C. –1.
D. infinity.
107. The slopes of the curve at points A and B (maximum and minimum) are:
A. zero and zero.
B. infinity and zero.
C. zero and 1.
D. 1 and zero.
[Question]
108. In the linear equation y = mx + b, m is the:
A. variable on the horizontal axis.
B. variable on the vertical axis.
C. slope.
D. vertical intercept.
[Question]
109. In the linear equation y = mx + b, an increase in b will:
A. shift the curve up.
B. shift the curve down.
C. cause the curve to become steeper.
D. cause the curve to become flatter.
110. What is 25 percent of 200?
A. 8.
B. 25.
C. 50.
D. 100.
111. Consider the following information, which provides percentage change in GDP per year:
Percentage
increase in GDP
2012 -10.0
2013 -5.0
2014 -5.0
2015 4.0
2016 10.0
Given this information, which of the following statements is true?
A. GDP in 2013 is less than in 2012.
B. GDP in 2013 is greater than in 2012.
C. GDP in 2016 is less than in 2015.
D. GDP in 2015 is greater than in 2014.
