Chapter 3/Interdependence and the Gains from Trade ❖ 81
218. Refer to Table 3-1. Relative to the rancher, the farmer has a comparative advantage in the production of
a.
meat, but not in the production of potatoes.
b.
potatoes, but not in the production of meat.
c.
both meat and potatoes.
d.
neither meat nor potatoes.
219. Refer to Table 3-1. Relative to the rancher, the farmer has
a.
a comparative advantage in the production of meat, because the farmer’s opportunity cost of a
pound of meat is lower than the rancher’s opportunity cost of a pound of meat.
b.
a comparative advantage in the production of potatoes, because the rancher requires less time than
the farmer to produce a pound of potatoes.
c.
a comparative advantage in the production of potatoes; relative to the farmer, the rancher has a
comparative advantage in the production of meat.
d.
an absolute advantage in the production of both meat and potatoes.
Figure 3-11
The graph below represents the various combinations of ham and cheese (in pounds) that the nation of
Bonovia could produce in a given month.
(in pounds)
(in pounds)
40 80 120 160 200 240 280 320 360 400 Ham
40
80
120
160
200
240
280
320
360
Cheese
220. Refer to Figure 3-11. For Bonovia, what is the opportunity cost of a pound of cheese?
a.
0.8 pounds of ham
b.
1.25 pounds of ham
c.
8 pounds of ham
d.
16 pounds of ham
82 ❖ Chapter 3/Interdependence and the Gains from Trade
221. Refer to Figure 3-11. Whenever Bonovia increases its production of ham by 1 pound per month, then it
must decrease its production of cheese by
a.
0.75 pound.
b.
0.80 pound.
c.
1.00 pounds.
d.
1.25 pounds.
222. Refer to Figure 3-11. The nation of Cropitia has a comparative advantage over Bonovia in producing ham if
a.
Cropitia can produce more than 400 pounds of ham per month.
b.
Cropitia can produce more than 320 pounds of cheese per month.
c.
Cropitia’s opportunity cost of producing a pound of ham is less than 0.8 pounds of cheese.
d.
Cropitia’s opportunity cost of producing a pound of ham is greater than 0.8 pounds of cheese.
223. Refer to Figure 3-11. In the nation of Cropitia, the opportunity cost of a pound of cheese is 1.5 pounds of
ham. Bonovia and Cropitia both can gain from trading with one another if one pound of cheese trades for
a.
1.0 pound of ham.
b.
1.4 pounds of ham.
c.
2.1 pounds of ham.
d.
All of the above are correct.
224. Refer to Figure 3-11. In the nation of Cropitia, the opportunity cost of a pound of ham is 0.3 pounds of
cheese. Bonovia and Cropitia both can gain from trading with one another if one pound of ham trades for
a.
0.40 pounds of cheese.
b.
0.55 pounds of cheese.
c.
0.75 pounds of cheese.
d.
All of the above are correct.
Table 3-17
US and French Production Opportunities
Wine (in millions of gallons)
Cheese (in millions of lbs.)
US
16
32
France
8
4
225. Refer to Table 3-17 The US has a comparative advantage in the production of
a.
wine.
b.
cheese.
c.
both wine and cheese.
d.
neither wine nor cheese.
226. Refer to Table 3-17 France has an absolute advantage in the production of
a.
wine.
b.
cheese.
c.
both wine and cheese.
d.
neither wine nor cheese.
227. Refer to Table 3-17 The opportunity costs for the US and France are as follows:
a.
In the US 1 million gallons of wine costs 1/2 million pounds of cheese and in France 1 million
gallons of wine costs 2 million pounds of cheese.
b.
In the US 1 million gallons of wine costs 2 million pounds of cheese and in France 1 million
gallons of wine costs 1/2 million pounds of cheese.
c.
In the US 1 million pounds of cheese costs 1/2 million gallons of wine and in France 1 million
pounds of cheese costs 2 million gallons of wine.
d.
In the US 1 million pounds of cheese costs 16 million gallons of wine and in France 1 million
pounds of cheese costs 8 million gallons of wine.
Table 3-18
Chris and Tony’s Production Opportunities
Tomatoes
Pasta Sauce
Chris
10 lbs
300 jars
Tony
14 lbs
280 jars
228. Refer to Table 3-18 Chris and Tony both produce tomatoes and pasta sauce. The table shows
their possible production per month if both work the same number of 8 hour days. Given this information,
Chris’s opportunity cost of 1 lb. of tomatoes is
a.
2 jars of sauce and Tony’s opportunity cost of 1 lb. of tomatoes is 3 jars of sauce.
b.
3 jars of sauce and Tony’s opportunity cost of 1 lb. of tomatoes is 2 jars of sauce.
c.
20 jars of sauce and Tony’s opportunity cost of 1 lb. of tomatoes is 30 jars of sauce.
d.
30 jars of sauce and Tony’s opportunity cost of 1 lb. of tomatoes is 20 jars of sauce.
229. Refer to Table 3-18 Chris and Tony both produce tomatoes and pasta sauce. The table shows their possible
production per month if both work the same number of 8 hour days. If Chris and Tony both decide to special-
ize and produce only the good in which they have a comparative advantage, then
a.
Chris will produce only sauce and Tony will produce only tomatoes.
b.
Chris will produce only tomatoes and Tony will produce only sauce.
c.
Both Chris and Tony will produce only sauce.
d.
Both Chris and Tony will produce only tomatoes.
84 ❖ Chapter 3/Interdependence and the Gains from Trade
230. Refer to Table 3-18 Chris and Tony both produce tomatoes and pasta sauce. The table shows their possible
production per month if both work the same number of 8 hour days. Which of the following statements is cor-
rect?
a.
Tony has a comparative advantage in the production of sauce.
b.
Chris has a comparative advantage in the production of tomatoes.
c.
Tony has an absolute advantage in the production of tomatoes.
d.
Chris has an absolute advantage in the production of tomatoes.
231. Refer to Table 3-18 Chris and Tony both produce tomatoes and pasta sauce. The table shows their possible
production per month if both work the same number of 8 hour days. Which of the following prices would re-
sult in a mutually advantageous trade between Chris and Tony?
a.
1 lb. of tomatoes for 23 jars of sauce
b.
1 lb. of tomatoes for 27 jars of sauce
c.
1 lb. of tomatoes for 33 jars of sauce
d.
.Both a and b are correct.
232. Adam Smith
a.
and David Ricardo both opposed free trade.
b.
opposed free trade, but David Ricardo supported it.
c.
supported free trade, but David Ricardo opposed it.
d.
and David Ricardo both supported free trade.
233. Adam Smith asserted that a person should never attempt to make at home
a.
what it will cost him more to make than to buy.
b.
any good in which that person does not have an absolute advantage.
c.
any luxury good.
d.
any necessity.
234. Which famous economist developed the principle of comparative advantage as we know it today?
a.
Adam Smith
b.
David Ricardo
c.
John Maynard Keynes
d.
Milton Friedman
Chapter 3/Interdependence and the Gains from Trade ❖ 85
235. 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.
236. Economists generally support
a.
trade restrictions.
b.
government management of trade.
c.
export subsidies.
d.
free international trade.
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.
86 ❖ Chapter 3/Interdependence and the Gains from Trade
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 compara-
tive 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.
Chapter 3/Interdependence and the Gains from Trade ❖ 87
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 work-
er 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 pre-
vented trade between the two countries on the grounds that cheap imports would kill the fish industry in Farm-
land 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 special-
ize 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 work-
er 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 con-
sume 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.
88 ❖ Chapter 3/Interdependence and the Gains from Trade
13. Suppose the US and Mexico both produce semiconductors and auto parts and the US has a comparative ad-
vantage in semiconductors while Mexico has a comparative advantage in auto parts. Also suppose the US has
an absolute advantage in the production of both semiconductors and auto parts. The US should
a.
not trade semiconductors and auto parts with Mexico.
b.
import semiconductors from Mexico and export auto parts to Mexico.
c.
export semiconductors to Mexico and import auto parts from Mexico.
d.
export both semiconductors and auto parts to Mexico.
14. Suppose the US and Mexico both produce semiconductors and auto parts and the US has a comparative ad-
vantage in semiconductors while Mexico has a comparative advantage in auto parts. If the US exports semi-
conductors to Mexico and imports auto parts from Mexico,
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.
Chapter 3/Interdependence and the Gains from Trade ❖ 89
Table 3-2
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 3-2. 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.
19. Refer to Table 3-2. 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 3-5
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 3-5. 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.
21. Refer to Table 3-5. 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.
90 ❖ Chapter 3/Interdependence and the Gains from Trade
Table 3-7
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
Japan
30
150
80
16
Korea
50
150
48
16
22. Refer to Table 3-7. 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 3-7. 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 3-8
Chile’s Production Possibilities Frontier
Colombia’s Production Possibilities Frontier
(in pounds)
(in pounds)
2 4 6 8 10 12 14 16 18 20 coffee
2
4
6
8
10
12
14
16
18
20 soybeans
(in pounds)
(in pounds)
2 4 6 8 10 12 14 16 18 20 coffee
2
4
6
8
10
12
14
16
18
20 soybeans
24. Refer to Figure 3-8. 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.
Chapter 3/Interdependence and the Gains from Trade ❖ 91
25. Refer to Figure 3-8. Colombia should specialize in the production of
a.
coffee and import soybeans.
b.
soybeans and import coffee.
c.
both goods and import neither good.
Figure 3-9
Uzbekistan’s Production Possibilities Frontier
Azerbaijan’s Production Possibilities Frontier
510 15 20 25 30 35 40 45 50 bolts
10
20
30
40
50
60
70
80
90
100 nails
510 15 20 25 30 35 40 45 50 bolts
10
20
30
40
50
60
70
80
90
100 nails
26. Refer to Figure 3-9. Uzbekistan should specialize in the production of
a.
bolts and import nails.
b.
nails and import bolts.
c.
both goods and import neither good.
d.
neither good and import both goods.
27. Refer to Figure 3-9. Azerbaijan should specialize in the production of
a.
bolts and import nails.
b.
nails and import bolts.
c.
both goods and import neither good.
d.
neither good and import both goods.
d.
neither good and import both goods.