Interdependence and the Gains from Trade 707
19. Refer to Table 3-37. Iceland 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.
Table 3-38
Assume that England and Spain can switch between producing cheese and producing bread at a
constant rate.
Labor Hours Needed
to Make 1 Unit of
Number of Units
Produced in 40 Hours
Cheese
Bread
Cheese
Bread
England
1
4
40
10
Spain
4
8
10
5
20. Refer to Table 3-38. England should export
a. cheese and import bread.
b. bread and import cheese.
c. both goods and import neither good.
d. neither good and import both goods.
708 Interdependence and the Gains from Trade
21. Refer to Table 3-38. Spain should export
a. cheese and import bread.
b. bread and import cheese.
c. both goods and import neither good.
d. neither good and import both goods.
Table 3-39
Assume that Japan and Korea can switch between producing cars and producing airplanes at a
constant rate.
Hours Needed
to Make 1
Quantity Produced
in 2400 Hours
Car
Airplane
Cars
Airplanes
30
150
80
16
50
150
48
16
22. Refer to Table 3-39. Japan should specialize in the production of
a. cars and import airplanes.
b. airplanes and import cars.
c. both goods and import neither good.
d. neither good and import both goods.
23. Refer to Table 3-39. Korea should specialize in the production of
a. cars and import airplanes.
b. airplanes and import cars.
c. both goods and import neither good.
d. neither good and import both goods.
Figure 3-25
Chile’s Production Possibilities Frontier Colombia’s Production Possibilities Frontier
710 Interdependence and the Gains from Trade
24. Refer to Figure 3-25. Chile should specialize in the production of
a. coffee and import soybeans.
b. soybeans and import coffee.
c. both goods and import neither good.
d. neither good and import both goods.
25. Refer to Figure 3-25. Colombia should specialize in the production of
a. coffee and import soybeans.
b. soybeans and import coffee.
c. both goods and import neither good.
d. neither good and import both goods.
Interdependence and the Gains from Trade 711
26. Alexis is a lawyer. She bills her clients $100 an hour for her services. She can also mow her lawn
in 30 minutes. She can hire someone to mow her lawn who takes an hour. Of the following
prices, which is the highest Alexis would pay someone to mow her lawn?
a. $99
b. $49
c. $29
d. Alexis would always mow her own lawn because she can do it faster.
Table 3-40
Hours Needed
to Make 1
Quantity Produced
in 2400 Hours
Boat
Car
Boats
Cars
Germany
40
30
60
80
Italy
40
50
60
48
27. Refer to Table 3-40. Germany should specialize in the production of
a. boats and import cars.
b. cars and import boats.
c. both goods and import neither good.
d. neither good and import both goods.
712 Interdependence and the Gains from Trade
28. Refer to Table 3-40. Italy should specialize in the production of
a. boats and import cars.
b. cars and import boats.
c. both goods and import neither good.
d. neither good and import both goods.
Multiple Choice – Section 04: Conclusion
1. Which of the following is not an example of the principle that trade can make everyone better
off?
a. Americans buy tube socks from China.
b. Residents of Maine drink orange juice from Florida.
c. A homeowner hires the kid next door to mow the lawn.
d. All of the above are examples of the principle that trade can make everyone better off.
Interdependence and the Gains from Trade 713
True/False and Short Answer
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
714 Interdependence and the Gains from Trade
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
Interdependence and the Gains from Trade 715
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
716 Interdependence and the Gains from Trade
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
Interdependence and the Gains from Trade 717
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
718 Interdependence and the Gains from Trade
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
Interdependence and the Gains from Trade 719
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
720 Interdependence and the Gains from Trade
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
Interdependence and the Gains from Trade 721
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
722 Interdependence and the Gains from Trade
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
Interdependence and the Gains from Trade 723
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
724 Interdependence and the Gains from Trade
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
Interdependence and the Gains from Trade 725
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
726 Interdependence and the Gains from Trade
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