16) The ability to produce a good at a lower opportunity cost than others is known as
A) comparative advantage.
B) absolute advantage.
C) specialization.
D) marginal cost production.
17) The division of labor refers to
A) workers being assigned specific tasks.
B) workers performing multiple tasks.
C) separating men and women in the workforce.
D) creating jobs that all people can perform at the same level.
18) Tiger Woods, a professional golfer, pays a garage mechanic to change the motor oil of his
car even though he can do the work himself. Which of the following best explains why Tiger
Woods does NOT change the oil himself?
A) Tiger Woods has an absolute advantage in changing oil.
B) Tiger Woods has a comparative advantage in changing oil.
C) There is no opportunity cost for the garage mechanic to change oil.
D) The opportunity cost of changing oil is higher for Tiger Woods than for the garage mechanic.
19) Division of labor refers to
A) dividing tasks up into several subtasks and having one person perform these subtasks in a
certain order.
B) the separation of hourly workers from salaried workers.
C) assigning different workers to different tasks.
D) separating union workers from nonunion workers.
20) Division of labor increases the output of society by
A) eliminating scarcity.
B) reducing the choices people have to make to a more manageable number.
C) ensuring that people are happier in performing their work.
D) allowing resources to specialize in the tasks for which they have a comparative advantage.
21) The division of productive activities among persons and regions so that no one individual or
area is totally self-sufficient is known as
A) advantage-taking.
B) comparative value.
C) specialization.
D) outsourcing.
22) Suppose that at a bicycle shop, instead of having each worker assemble an entire bicycle
themselves, one person welds the frames, another person works on the braking system, another
person works on the tires, and another person works on the gears. This best demonstrates the
concept of
A) division of labor.
B) microeconomics.
C) comparative advantage.
D) absolute advantage.
23) With specialization
A) opportunity costs tend to be constant.
B) there are greater gains in material well being.
C) there is more emphasis on self-reliance.
D) society is more productive while individuals are less productive.
24) Specialization occurs because
A) society trades current consumption for future consumption.
B) the production possibilities curve tends to be linear.
C) people have different skills.
D) society produces at the production possibilities curve.
25) The concept of absolute advantage relies on
A) the idea of comparative advantage.
B) the ability to produce more units of an item with a given amount of resources.
C) the idea of opportunity cost.
D) the concept of economic efficiency as measured on the production possibility curve.
26) The idea of comparative advantage is related to
A) the idea of opportunity cost.
B) the idea of absolute advantage.
C) using the worker with the most diverse sets of skills.
D) engineering efficiency.
27) The division of labor refers to
A) the separation of blue-collared workers and white-collared workers.
B) finding the best order of performing tasks.
C) the separation of workers into union workers and non-union workers.
D) the assignment of different workers to different tasks.
28) Division of labor
A) increases the amount of capital in the economy.
B) leads to an increase in the amount of output in the economy.
C) makes economic goods possible.
D) is not possible for service goods.
29) Comparative advantage is the ability to
A) perform an activity at a lower opportunity cost.
B) determine who your best trading partners are.
C) determine the best use of capital goods.
D) convince others of the best choices to make in their own self-interest.
30) Why do most people choose to specialize in a narrow set of skills for their work, rather than
to learn a little bit about several varied fields of endeavor?
A) They feel that doing so will minimize their chances of being unemployed.
B) They don’t correctly perceive the costs of being so specialized.
C) It allows them to earn more income by being more productive.
D) They are unaware of how much better off they would be if they diversified their skills.
31) Jose and Maria work at a restaurant. Jose can make either 10 pancakes or 4 waffles; Maria
can make either 8 pancakes or 2 waffles. According to this scenario, the opportunity cost of
making one waffle for Maria is
A) 4 pancakes.
B) 1/4 pancake.
C) 2 1/2 pancakes.
D) 2/5 pancake.
32) Jose and Maria work at a restaurant. Jose can make either 10 pancakes or 4 waffles; Maria
can make either 8 pancakes or 2 waffles. According to this scenario, the opportunity cost of
making one pancake for Jose is
A) 1/4 waffle.
B) 2/5 waffle.
C) 2.5 waffles.
D) 4 waffles.
33) Jose and Maria work at a restaurant. Jose can make either 10 pancakes or 4 waffles; Maria
can make either 8 pancakes or 2 waffles. According to this scenario
A) Maria has the absolute advantage in making waffles.
B) Jose has the absolute advantage in making waffles.
C) Maria has the comparative advantage in making waffles.
D) Jose has the comparative advantage in making pancakes.
34) Jose and Maria work at a restaurant. Jose can make either 10 pancakes or 4 waffles; Maria
can make either 8 pancakes or 2 waffles. According to this scenario
A) Maria has the absolute advantage in making waffles
B) Maria has the absolute advantage in making pancakes.
C) Maria has the comparative advantage in making pancakes.
D) Jose has the comparative advantage in making pancakes.
35) One of the benefits of specialization is
A) greater output.
B) people enjoy doing one repetitive task over and over.
C) specialists cost less to hire.
D) training costs are higher.
36) If Irene can make either four chairs or one table in an hour and Greg can make either three
chairs or two tables in an hour, then
A) Irene has the absolute advantage in the production of tables.
B) Greg has the absolute advantage in the production of chairs.
C) Irene has the comparative advantage in the production of chairs.
D) Greg has the comparative advantage in the production of chairs.
37) If Irene can make either four chairs or one table in an hour and Greg can make either three
chairs or two tables in an hour then
A) Irene has the absolute advantage in the production of chairs.
B) Irene has the comparative advantage in the production of tables.
C) Greg has the absolute advantage in the production of chairs.
D) Greg has the comparative advantage in the production of chairs.
38) When Adam Smith’s ten pin workers specialized, they were able to increase output of pins in
a day from 200 to 48,000. One reason for the increase in pin output was due to
A) the time saved when workers do not need to shift from one task to another.
B) the boredom the workers suffered when they stopped making a whole pin and only
concentrated on one task such as painting the heads white.
C) new machinery.
D) the bonus they received when they produced more pins.
39) The making and selling of a pencil for ten cents would likely NOT be possible, but for
A) relative advantage.
B) the production possibilities curve.
C) absolute advantage.
D) the division of labor.
40) When productive activities are organized according to the principle of the division of labor
A) scarcity is eliminated.
B) we do not devote enough resources for capital investment.
C) total output increases due to the advantages of specialization.
D) an inefficient outcome results.
41) Division of labor means that
A) the labor market in the United States is geographically segmented.
B) some employees join labor unions and others do not.
C) management and labor are always in conflict.
D) the production process is divided into smaller tasks.
42) Two factories make wooden chairs. If the workers in factory A make each chair from start to
finish and the workers in factory B divide labor, one would assume
A) the chairs in factory A are of higher quality.
B) the workers in factory B have more job satisfaction.
C) factory B can take advantage of division of labor and produce more efficiently.
D) factory A can take advantage of division of labor and produce more efficiently.
43) If a CEO can type faster than her secretary, then
A) the CEO has a comparative advantage in typing.
B) the CEO has neither a comparative advantage in typing, nor in management.
C) the CEO should still continue performing CEO duties since the CEO has a comparative
advantage in management, and the secretary should continue typing.
D) the CEO should still continue performing CEO duties as well as typing since he has a
comparative advantage in both management, and typing.
44) “My brother is better at cooking, better at cleaning, and better at fixing the car than I am.”
Relative to me, my brother has
A) an absolute advantage in cooking, cleaning, and car repair.
B) a comparative advantage in cooking, cleaning, and car repair.
C) more intelligence than me.
D) more income than me.
45) If a CEO is a better at typing a document than his assistant, he is said to have a(n) ________
advantage in typing over his assistant.
A) absolute
B) unusual
C) relative
D) overwhelming
46) Assuming a CEO has to sacrifice more than his assistant in order to engage in full-time
typing, we would say that his assistant has a(n) ________ advantage in typing versus the CEO.
A) absolute
B) comparative
C) pecuniary
D) overwhelming
47) Comparative advantage implies that you
A) can produce more units of a good or service than another.
B) can produce a good or service at a lower opportunity cost.
C) can produce goods with more capital resources.
D) can produce goods with more human resources.
48) Which of the following is TRUE with respect to specialization?
A) Adam Smith in The Wealth of Nations referred to specialization and division of labor.
B) With a given set of resources, specialization results in higher output.
C) Individuals and nations specialize in their areas of comparative advantage in order to reap the
gains of specialization.
D) All of the above are correct.
49) The principle of comparative advantage implies that
A) only wealthy countries ultimately can benefit from international trade.
B) every country can benefit from international trade.
C) we should limit the extent to which people specialize.
D) most people are harmed by trade.
50) Assume that Economy A and Economy B have the same resources, but that individuals in
Economy A have specialized whereas individuals in Economy B have not. Given this
information, you can determine that
A) Economy A will have a higher output than Economy B.
B) Economy A will have a lower output than Economy B.
C) Economy A and Economy B will have identical outputs.
D) individuals in Economy A will have lower incomes than individuals in Economy B.
51) When nations specialize in their areas of comparative advantage and then trade with the rest
of the world, the result is that
A) the average standard of living in the world will go down.
B) the average standard of living in the world will go up.
C) the world will move from a point on the production possibilities curve to a point inside the
curve.
D) worldwide economic efficiency will decrease.
52) When a country specializes and trades with other countries, it is most likely that it specializes
in goods for which
A) it has a comparative advantage.
B) it has an absolute advantage.
C) it has no advantage.
D) are very costly to produce.
53) When two countries specialize in the production of different goods and trade with each other,
it is most likely each country will
A) export the goods in which it has a comparative advantage.
B) export the goods in which it has an absolute advantage.
C) import the goods in which it has a comparative advantage.
D) import the goods in which it has an absolute advantage.
54) Which of the following is TRUE about comparative advantage?
A) Comparative advantage explains trade among nations, but not within nations.
B) Comparative advantage explains trade within nations, but not among nations.
C) Comparative advantage explains trade within nations and among nations.
D) Comparative advantage has nothing to do with trade among nations; it only is concerned with
specialization within a firm.
55) When a country or a region of a country specializes in producing the product that has the
lower opportunity cost compared to another country or region, it is practicing
A) absolute advantage.
B) cost disadvantage.
C) regional advantage.
D) comparative advantage.
56) The reason that most of the coffee that is consumed in the United States comes from
Colombia is that
A) Colombia has an absolute advantage in producing coffee relative to the United States.
B) Colombia has a comparative advantage in producing coffee relative to the United States.
C) coffee cannot be grown in the United States.
D) government trade disincentives regarding Colombian coffee make such trade possible.
57) The text argues that if avocado growers in Mexico can produce avocadoes cheaper than
avocado growers in the United States, this will not reduce total jobs available in the United
States. The logic underlying this argument is that
A) avocado growers in the United States did not earn much anyway.
B) avocado growers in the United States are welcome to emigrate to Mexico.
C) avocado growers in the United States will switch to specializing in a crop in which they hold
the comparative advantage.
D) avocado growers in Mexico need the jobs more than Americans do.
58) You should specialize in the production of a good if you have
A) an absolute advantage.
B) more capital resources than your trading partner.
C) more human resources than your trading partner.
D) a comparative advantage.
59) In economics, international trade is based on the existence of
A) absolute advantage between countries.
B) relative advantage between countries.
C) comparative advantage between countries.
D) output advantage between countries.
60) Suppose that Canadian farmers can grow wheat more cheaply than can U.S. farmers. In the
interest of efficiency, what is the desirable outcome?
A) Allow the Canadian farmers to sell their wheat for a lower price.
B) Pass a law in Canada mandating a minimum price for wheat equal to what is charged by U.S.
farmers.
C) Pass a law in the United States mandating a maximum price for wheat equal to what is
charged by Canadian farmers.
D) Have U.S. citizens boycott Canadian wheat.
61) Economists argue that unhindered international trade leads to an efficient outcome. What is
meant by “an efficient outcome” in this context?
A) an outcome in which wages are roughly equal around the world
B) an outcome in which the standard of living is roughly equal around the world
C) an outcome in which an individual can choose to specialize in a certain line of work and be
certain that he or she can make a living at that until retirement
D) an outcome in which resources are devoted to their most efficient use
62) Based on the above figure, if countries “A” and “B” faced the production possibilities curves
above, both countries would benefit if
A) they did not trade.
B) “A” produced industrial goods, and “B” produced agricultural goods.
C) “B” produced industrial goods, and “A” produced agricultural goods.
D) they both produced both industrial and agricultural goods.
63) According to the concept of comparative advantage, a good should be produced in that
nation in which
A) domestic opportunity cost is greatest.
B) domestic opportunity cost is the smallest.
C) money is used.
D) terms of trade are maximized.
64) International trade between two nations increases the standard of living of both nations due
to
A) specialization and gains from absolute advantage.
B) specialization and gains from comparative advantage.
C) high tariffs.
D) political intervention.
65) Distinguish the concepts of comparative advantage and absolute advantage.
66) What is the “division of labor”? How is the division of labor related to production?
67) Explain how comparative advantage, specialization and division of labor are related.
68) What is the difference between comparative advantage and absolute advantage?
69) Why do most people specialize in their work?
70) Briefly explain how specialization and trade can benefit nations.
71) Would a country with an absolute advantage in the production of all goods and services trade
with other countries? Explain.
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72) Politicians often argue that a country’s standard of living is reduced when it allows imports
into the country. Offer an economically sound counter-argument.
73) What happens to overall living standards when countries trade with other countries?