Interdependence and the Gains from Trade 567
16. Travis can mow a lawn in two hours or he can trim a tree in one hour. Ricardo can mow a lawn
in three hours or he can trim a tree in two hours.
a. Travis has an absolute advantage over Ricardo in trimming trees.
b. Travis has a comparative advantage over Ricardo in mowing lawns.
c. Ricardo has a comparative advantage over Travis in trimming trees.
d. All of the above are correct.
17. Suppose Susan can wash three windows per hour or she can iron six shirts per hour. Paul can
wash two windows per hour or he can iron five shirts per hour.
a. Susan has an absolute advantage over Paul in washing windows.
b. Susan has a comparative advantage over Paul in washing windows.
c. Paul has a comparative advantage over Susan in ironing shirts.
d. All of the above are correct.
568 Interdependence and the Gains from Trade
18. Suppose Jim and Tom can both produce two goods: baseball bats and hockey sticks. Which of the
following is not possible?
a. Jim has an absolute advantage in the production of baseball bats and in the production of
hockey sticks.
b. Jim has an absolute advantage in the production of baseball bats and a comparative advantage
in the production of hockey sticks.
c. Jim has an absolute advantage in the production of hockey sticks and a comparative advantage
in the production of baseball bats.
d. Jim has a comparative advantage in the production of baseball bats and in the production of
hockey sticks.
19. Kelly and David are both capable of repairing cars and cooking meals. Which of the following
scenarios is not possible?
a. Kelly has a comparative advantage in repairing cars and David has a comparative advantage in
cooking meals.
b. Kelly has an absolute advantage in repairing cars and David has an absolute advantage in
cooking meals.
c. Kelly has a comparative advantage in repairing cars and in cooking meals.
d. David has an absolute advantage in repairing cars and in cooking meals.
Interdependence and the Gains from Trade 569
20. Suppose Jim and Tom can both produce baseball bats. If Jim’s opportunity cost of producing
baseball bats is lower than Tom’s opportunity cost of producing baseball bats, then
a. Tom must have an absolute advantage in the production of baseball bats.
b. Jim must have an absolute advantage in the production of baseball bats.
c. Tom has a comparative advantage in the production of baseball bats.
d. Jim has a comparative advantage in the production of baseball bats.
21. If Shawn can produce donuts at a lower opportunity cost than Sue, then
a. Shawn has a comparative advantage in the production of donuts.
b. Sue has a comparative advantage in the production of donuts.
c. Shawn should not produce donuts.
d. Shawn is capable of producing more donuts than Sue in a given amount of time.
570 Interdependence and the Gains from Trade
22. If Iowa’s opportunity cost of corn is lower than Oklahoma’s opportunity cost of corn, then
a. Iowa has a comparative advantage in the production of corn.
b. Iowa has an absolute advantage in the production of corn.
c. Iowa should import corn from Oklahoma.
d. Oklahoma should produce just enough corn to satisfy its own residents’ demands.
23. Canada and the U.S. both produce wheat and computer software. Canada is said to have the
comparative advantage in producing wheat if
a. Canada requires fewer resources than the U.S. to produce a bushel of wheat.
b. the opportunity cost of producing a bushel of wheat is lower for Canada than it is for the U.S.
c. the opportunity cost of producing a bushel of wheat is lower for the U.S. than it is for Canada.
d. the U.S. has an absolute advantage over Canada in producing computer software.
Interdependence and the Gains from Trade 571
24. Both Dave and Caroline produce sweaters and socks. If Dave’s opportunity cost of 1 sweater is
3 socks and Caroline’s opportunity cost of 1 sweater is 5 socks, then
a. Dave has a comparative advantage in the production of sweaters.
b. Caroline has a comparative advantage in the production of sweaters.
c. Dave has a comparative advantage in the production of socks.
d. Dave has a comparative advantage in the production of both sweaters and socks.
25. Comparative advantage is related most closely to which of the following?
a. output per hour
b. opportunity cost
c. efficiency
d. bargaining strength in international trade
572 Interdependence and the Gains from Trade
26. When describing the opportunity cost of two producers, economists use the term
a. natural advantage.
b. trading advantage.
c. comparative advantage.
d. absolute advantage.
27. For two individuals who engage in the same two productive activities, it is impossible for one of
the two individuals to
a. have a comparative advantage in both activities.
b. have an absolute advantage in both activities.
c. be more productive per unit of time in both activities.
d. gain from trade with each other.
Interdependence and the Gains from Trade 573
28. Two individuals engage in the same two productive activities. In which of the following
circumstances would neither individual have a comparative advantage in either activity?
a. One individual’s production possibilities frontier is steeper than the other individual’s production
possibilities frontier.
b. One individual is faster at both activities than the other individual.
c. One individual’s opportunity costs are the same as the other individual’s opportunity costs.
d. None of the above is correct; one of the two individuals always will have a comparative
advantage in at least one of the two activities.
29. Which of the following statements about comparative advantage is not true?
a. Comparative advantage is determined by which person or group of persons can produce a
given quantity of a good using the fewest resources.
b. The principle of comparative advantage applies to countries as well as to individuals.
c. Economists use the principle of comparative advantage to emphasize the potential benefits of
free trade.
d. A country may have a comparative advantage in producing a good, even though it lacks an
absolute advantage in producing that good.
574 Interdependence and the Gains from Trade
30. The principle of comparative advantage does not provide answers to certain questions. One of
those questions is
a. Do specialization and trade benefit more than one party to a trade?
b. Is it absolute advantage or comparative advantage that really matters?
c. How are the gains from trade shared among the parties to a trade?
d. Is it possible for specialization and trade to increase total output of traded goods?
31. The principle of comparative advantage does not provide answers to certain questions. One of
those questions is
a. Is it possible for specialization and trade to benefit more than one party to a trade?
b. Is it possible for specialization and trade to increase total output of traded goods?
c. Do opportunity costs play a role in people’s decisions to specialize in certain activities?
d. What determines the price at which trade takes place?
Interdependence and the Gains from Trade 575
32. Which of the following is not correct?
a. The producer who requires a smaller quantity of inputs to produce a good is said to have an
absolute advantage in producing that good.
b. The producer who gives up less of other goods to produce Good X has the smaller opportunity
cost of producing Good X.
c. The producer who has the smaller opportunity cost of producing a good is said to have a
comparative advantage in producing that good.
d. The gains from specialization and trade are based not on comparative advantage but on
absolute advantage.
33. Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per
year, and a worker in Oatland can grow either 20 bushels of corn or 5 bushels of oats per year.
There are 20 workers in Cornland and 20 workers in Oatland. Which of the following statements
is true?
a. Both countries could gain from trade with each other.
b. Neither country could gain from trade with each other because Cornland has an absolute
advantage in both goods.
c. Neither country could gain from trade with each other because neither one has a comparative
advantage.
d. Oatland could gain from trade between the two countries, but Cornland definitively would lose.
576 Interdependence and the Gains from Trade
34. Suppose that the country of Xenophobia chose to isolate itself from the rest of the world. Its ruler
proclaimed that Xenophobia should become self-sufficient, so it would not engage in foreign trade.
From an economic perspective, this idea would
a. make sense if Xenophobia had an absolute advantage in all goods.
b. make sense if Xenophobia had no absolute advantages in any good.
c. not make sense as long as Xenophobia had a comparative advantage in some good.
d. not make sense as long as Xenophobia had an absolute advantage in at least half the goods that
could be traded.
35. Specialization and trade are closely linked to
a. absolute advantage.
b. comparative advantage.
c. gains to some traders that exactly offset losses to other traders.
d. shrinkage of the economic pie.
Interdependence and the Gains from Trade 577
36. When each person specializes in producing the good in which he or she has a comparative
advantage, total production in the economy
a. falls.
b. stays the same.
c. rises.
d. may fall, rise, or stay the same.
37. Total output in an economy increases when each person specializes because
a. there is less competition for the same resources.
b. each person spends more time producing that product in which he or she has a comparative
advantage.
c. a wider variety of products will be produced within each country due to specialization.
d. government necessarily plays a larger role in the economy due to specialization.
578 Interdependence and the Gains from Trade
38. Which of the following statements is not correct?
a. Trade allows for specialization.
b. Trade has the potential to benefit all nations.
c. Trade allows nations to consume outside of their production possibilities curves.
d. Absolute advantage is the driving force of specialization.
39. Assume that Greece has a comparative advantage in fish and Germany has a comparative
advantage in cars. Also assume that Germany has an absolute advantage in both fish and cars. If
these two countries specialize and trade so as to maximize the benefits of specialization and trade,
then
a. the two countries’ combined output of both goods will be higher than it would be in the
absence of trade.
b. Greece will produce more fish than it would produce in the absence of trade.
c. Germany will produce more cars than it would produce in the absence of trade.
d. All of the above are correct.
Interdependence and the Gains from Trade 579
40. Suppose that a worker in Radioland can produce either 4 radios or 1 television per year and a
worker in Teeveeland can produce either 2 radios or 5 televisions per year. Each nation has 100
workers, and each country specializes according to the principle of comparative advantage. If
Radioland trades 100 televisions to Teeveeland in exchange for 100 radios each year, then each
country’s maximum consumption of new radios and televisions per year will be
a. higher than it would be in the absence of trade because of the gains from trade.
b. the same as it would be in the absence of trade.
c. less than it would be in the absence of trade because neither country is specializing in the
product in which it has a comparative advantage.
d. less than it would be in the absence of trade because Teeveeland has an absolute advantage in
both goods and so it cannot benefit by trading with Radioland.
41. Suppose that a worker in Radioland can produce either 4 radios or 1 television per year, and a
worker in Teeveeland can produce either 2 radios or 4 televisions per year. Each nation has 100
workers. Also suppose that each country completely specializes in producing the good in which it
has a comparative advantage. If Radioland trades 100 radios to Teeveeland in exchange for 100
televisions each year, then each country’s maximum consumption of new radios and televisions per
year will be
a. 100 radios, 300 televisions in Radioland and 300 radios, 100 televisions in Teeveeland.
b. 300 radios, 100 televisions in Radioland and 100 radios, 300 televisions in Teeveeland.
c. 200 radios, 100 televisions in Radioland and 100 radios, 200 televisions in Teeveeland.
d. 300 radios, 100 televisions in Radioland and 100 radios, 400 televisions in Teeveeland.
580 Interdependence and the Gains from Trade
42. Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of wheat per
year, and a worker in Sylvania can produce either 2 units of corn or 6 units of wheat per year.
Each nation has 10 workers. Without trade, Freedonia produces and consumes 30 units of corn
and 10 units of wheat per year. Sylvania produces and consumes 10 units of corn and 30 units of
wheat. Suppose that trade is then initiated between the two countries, and Freedonia sends 30
units of corn to Sylvania in exchange for 30 units of wheat. Freedonia will now be able to
consume a maximum of
a. 30 units of corn and 30 units of wheat.
b. 40 units of corn and 30 units of wheat.
c. 40 units of corn and 20 units of wheat.
d. 10 units of corn and 40 units of wheat.
43. Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of wheat per
year, and a worker in Sylvania can produce either 2 units of corn or 6 units of wheat per year.
Each nation has 10 workers. Without trade, Freedonia produces and consumes 30 units of corn
and 10 units of wheat per year. Sylvania produces and consumes 10 units of corn and 30 units of
wheat. Suppose that trade is then initiated between the two countries, and Freedonia sends 30
units of corn to Sylvania in exchange for 30 units of wheat. Sylvania will now be able to consume
a maximum of
a. 30 units of corn and 30 units of wheat.
b. 40 units of corn and 30 units of wheat.
c. 40 units of corn and 20 units of wheat.
d. 10 units of corn and 40 units of wheat.
Interdependence and the Gains from Trade 581
44. Suppose that a worker in Agland can produce either 10 units of organic grain or 2 units of incense
per year, and a worker in Zenland can produce either 5 units of organic grain or 15 units of
incense per year. There are 20 workers in Agland and 10 workers in Zenland. Currently the two
countries do not trade. Agland produces and consumes 100 units of grain and 20 units of incense
per year. Zenland produces and consumes 50 units of grain and no incense per year. If each
country made the decision to specialize in producing the good in which it has a comparative
advantage, then the combined yearly output of the two countries would increase by
a. 30 units of grain and 100 units of incense.
b. 30 units of grain and 150 units of incense.
c. 50 units of grain and 90 units of incense.
d. 50 units of grain and 130 units of incense.
45. Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per
year, and a worker in Oatland can grow either 5 bushels of corn or 50 bushels of oats per year.
There are 20 workers in Cornland and 20 workers in Oatland. If the two countries do not trade,
Cornland will produce and consume 400 bushels of corn and 100 bushels of oats, while Oatland
will produce and consume 60 bushels of corn and 400 bushels of oats. If each country made the
decision to specialize in producing the good in which it has a comparative advantage, then the
combined yearly output of the two countries would increase by
a. 280 bushels of corn and 450 bushels of oats.
b. 340 bushels of corn and 500 bushels of oats.
c. 360 bushels of corn and 520 bushels of oats.
d. 360 bushels of corn and 640 bushels of oats.
582 Interdependence and the Gains from Trade
46. Suppose that a worker in Freedonia can produce either 6 units of corn or 2 units of wheat per
year, and a worker in Sylvania can produce either 2 units of corn or 6 units of wheat per year.
Each nation has 10 workers. For many years the two countries traded, each completely
specializing according to their respective comparative advantages. Now, however, war has broken
out between them and all trade has stopped. Without trade, Freedonia produces and consumes 30
units of corn and 10 units of wheat per year. Sylvania produces and consumes 10 units of corn
and 30 units of wheat. The war has caused the combined yearly output of the two countries to
decline by
a. 10 units of corn and 10 units of wheat.
b. 20 units of corn and 20 units of wheat.
c. 30 units of corn and 30 units of wheat.
d. 40 units of corn and 40 units of wheat.
47. Suppose that a worker in Caninia can produce either 2 blankets or 8 meals per day, and a worker
in Felinia can produce either 5 blankets or 1 meal per day. Each nation has 10 workers. For many
years, the two countries traded, each completely specializing according to their respective
comparative advantages. Now war has broken out between them and all trade has stopped.
Without trade, Caninia produces and consumes 10 blankets and 40 meals per day and Felinia
produces and consumes 25 blankets and 5 meals per day. The war has caused the combined daily
output of the two countries to decline by
a. 15 blankets and 35 meals.
b. 25 blankets and 40 meals.
c. 35 blankets and 45 meals.
d. 50 blankets and 80 meals.
Interdependence and the Gains from Trade 583
48. A person can benefit from specialization and trade by obtaining a good at a price that is
a. lower than his or her opportunity cost of that good.
b. the same as his or her opportunity cost of that good.
c. higher than his or her opportunity cost of that good.
d. different than his or her opportunity cost of that good.
49. The gains from trade are
a. evident in economic models, but seldom observed in the real world.
b. evident in the real world, but impossible to capture in economic models.
c. a result of more efficient resource allocation than would be observed in the absence of trade.
d. based on the principle of absolute advantage.
50. Trade can make everybody better off because it
a. increases cooperation among nations.
b. allows people to specialize according to comparative advantage.
c. requires some workers in an economy to be retrained.
d. reduces competition among domestic companies.
584 Interdependence and the Gains from Trade
51. If labor in Mexico is less productive than labor in the United States in all areas of production,
a. then neither nation can benefit from trade.
b. then Mexico can benefit from trade but the United States cannot.
c. then the United States will have a comparative advantage relative to Mexico in the production
of all goods.
d. then both Mexico and the United States still can benefit from trade.
Table 3-20
Assume that Brad and Theresa can switch between producing wheat and producing beef at a
constant rate.
Minutes Needed to Make 1
Bushel of Wheat
Pound of Beef
Brad
10
12
Theresa
6
10
52. Refer to Table 3-20. What is Brad’s opportunity cost of producing one pound of beef?
a. 5/6 bushel of wheat
b. 6/5 bushels of wheat
c. 3/5 bushels of wheat
d. 5/3 bushels of wheat
Interdependence and the Gains from Trade 585
53. Refer to Table 3-20. What is Brad’s opportunity cost of producing one bushel of wheat?
a. 5/6 pound of beef
b. 6/5 pounds of beef
c. 3/5 pounds of beef
d. 5/3 pounds of beef
54. Refer to Table 3-20. What is Theresa’s opportunity cost of producing one bushel of wheat?
a. 5/6 pound of beef
b. 6/5 pound of beef
c. 3/5 pound of beef
d. 5/3 pounds of beef
586 Interdependence and the Gains from Trade
55. Refer to Table 3-20. What is Theresa’s opportunity cost of producing one pound of beef?
a. 5/6 bushel of wheat
b. 6/5 bushel of wheat
c. 3/5 bushel of wheat
d. 5/3 bushels of wheat
56. Refer to Table 3-20. Brad has an absolute advantage in the production of
a. wheat and Theresa has an absolute advantage in the production of beef.
b. beef and Theresa has an absolute advantage in the production of wheat.
c. both goods and Theresa has an absolute advantage in the production of neither good.
d. neither good and Theresa has an absolute advantage in the production of both goods.