Chapter 32 Comparative Advantage and the Open Economy 569
Maximum Feasible Hourly Production Rates of Either
Computers or Bicycles Using All Available Resources
Product United States Mexico
Computers 8 10
Bicycles 4 2
64) Refer to the above table. Assuming constant opportunity costs, the opportunity cost of
producing a computer in the United States is ________ while the opportunity cost of producing
a computer in Mexico is ________.
A) 0.8 bicycle; 2 computers B) 2.5 computers; 0.25 bicycle
C) 0.5 bicycle; 0.2 bicycle D) 2 bicycles; 5 bicycles
65) Refer to the above table. Assuming constant opportunity costs, the opportunity cost of
producing a bicycle in the United States is ________ while the opportunity cost of producing a
bicycle in Mexico is ________.
A) 8 computers; 10 computer B) 4 computers; 10 computers
C) 5 computers; 2 computers D) 2 computers; 5 computers
66) Refer to the above table. It may be concluded that
A) Mexico has a comparative advantage in computer production.
B) Mexico has a comparative advantage in bicycle production.
C) The United States has a comparative advantage in producing both goods.
D) The United States has a comparative advantage in producing neither good.
67) Refer to the above table. It may be concluded that
A) The United States will exports computers and import bicycles.
B) Mexico will exports computers and import bicycles.
C) The United States will export both goods.
D) The United States will import both goods.
68) Refer to the above table. If opportunity costs are constant, then the United States and Mexico
will produce goods in which they have a comparative advantage and trade at a rate of exchange
of
A) 4 computers for 1 bicycle. B) 6 computers for 1 bicycle.
C) 0.1 computer for 1 bicycle. D) 1 computer for 1 bicycle.
Maximum Feasible Hourly Production Rates of Either
Cuckoo Clocks or Movies Using All Available Resources
Product United States Switzerland
Cuckoo Clocks 4 2
Movies 10 4
69) Based on the data in the above table, then if opportunity costs are constant, the opportunity cost
of producing movies in the United States is ________, and the opportunity cost of producing
movies in Switzerland is ________.
A) 2 movies; 2 cuckoo clocks B) 2.5 movies; 0.4 cuckoo clocks
C) 0.4 cuckoo clocks; 0.5 cuckoo clocks D) 2.5 cuckoo clocks; 2 cuckoo clocks
70) Refer to the above table. If opportunity costs are constant, residents of the United States will
gain from specializing and trading with Switzerland if the
A) produce both clocks and films and export clocks to Switzerland.
B) produce both clocks and films and export both to Switzerland.
C) import films and export clocks to Switzerland.
D) import clocks and export films.
71) Assume that maximum feasible hourly productions levels if all resources are utilized in the
United States are either 3 yards of fabric or 9 bushels of wheat. Maximum feasible production
levels if all resources are utilized in Japan are either 6 yards of fabric or 12 bushels of wheat.
Based on this information
A)
b
eneficial trade is absolutely impossible between the two countries.
B) the United States will benefit from trading but Japan will not.
C)
b
oth nations will gain from specialization and trade, with the United States exporting
wheat and Japan exporting fabric.
D)
J
apan should specialize in both products.
The Number of Worker Days to Produce One
Cuckoo Clock or Movie Using All Available Resources
U.S. Switzerland
Product (Worker Days) (Worker Days)
Cuckoo Clocks 8 6
Movies 12 4
72) Based on the data in the above table, then if opportunity costs are constant, the opportunity cost
of producing one cuckoo clock in the United States is ________, and the opportunity cost of
producing one cuckoo clock in Switzerland is ________.
A) 3 movies; 1.33 cuckoo clocks B) 0.33 movies; 0.67 cuckoo clocks
C) 0.67 movie; 1.5 movies D) 1.5 movies; 0.67 movie
73) Refer to the above table. Assuming constant opportunity costs, which of the of the following
statements is correct if the rate of exchange is 1 movie for 1 cuckoo clock.
A) U.S. residents would be willing to export cuckoo clocks, but Swiss residents would not
gain from exporting movies at this rate of exchange.
B) Swiss residents would be willing to export movies, but U.S. residents would not gain from
exporting cuckoo clocks at this rate of exchange.
C) U.S. residents will gain from exporting movies and Swiss residents will gain from
exporting cuckoo clocks at a rate of exchange.
D) U.S. residents will gain from exporting cuckoo clocks and Swiss residents will gain from
exporting movies at a rate of exchange.
74) Assume that maximum feasible hourly productions levels if all resources are utilized in the
United States are either 8 yards of fabric or 4 bushels of wheat. Maximum feasible production
levels if all resources are utilized in Japan are either 3 yards of fabric or 6 bushels of wheat.
Based on this information
A)
b
eneficial trade is absolutely impossible between the two countries.
B) the United States will benefit from trading but Japan will not.
C)
b
oth nations will gain from specialization and trade, with the United States exporting
wheat and Japan exporting fabric.
D)
b
oth nations will gain from specialization and trade, with the United States exporting
fabric and Japan exporting wheat.
75) Which of the following is a TRUE statement?
A) Everyone benefits from free trade.
B) Exporters benefit from trade and importers do not.
C) Consumers benefit from trade and producers do not.
D) Free trade harms domestic producers of goods that face import competition.
76) In order to obtain an efficient allocation of resources worldwide
A) countries that have a lot of resources should ship resources to countries that do not have a
lot of resources.
B) countries that have a lot of resources should not trade since poorer countries cannot
compete.
C) each country should produce the good they have a comparative advantage in and then
trade.
D) no trade among countries should occur.
77) Benefits of free trade include all of the following EXCEPT
A) increased world production.
B) higher standards of living.
C) transmission of new ideas.
D) increased international mobility of labor.
78) According to international trade theory,
A) trade is based on absolute advantage.
B) comparative advantage is based on absolute advantage.
C) every country has a comparative advantage in something.
D) less developed countries cannot trade successfully with developed countries.
79) If Bob can produce completed mathematics homework assignments at a lower opportunity cost
than Jane can accomplish, then Bob has ________ in completing mathematics homework
assignments.
A) a relative advantage B) an absolute advantage
C) a complete advantage D) a comparative disadvantage
80) Which of the following is NOT a benefit of international trade?
A) It increases overall output.
B) It results in a transmission of ideas.
C) It promotes self sufficiency.
D) It results in the transmission of new processes.
81) All of the following are reasons that trade between nations is beneficial EXCEPT
A) gains from specialization. B) exchange of ideas.
C) protection of domestic industries. D) gains from trade.
82) Comparative advantage is the ability, compared with another producer,
A) to produce more of a product with the same resources.
B) to use fewer inputs to produce the same amount of a product.
C) to produce a higher quality product with fewer resources.
D) to produce an additional unit of a product at lower opportunity cost.
83) The ability to produce a good or service at a lower opportunity cost than other producers is
A) absolute advantage. B) comparative advantage.
C) opportunity advantage. D) special advantage.
84) International trade is based on the existence of
A) absolute advantage. B) perfect advantage.
C) productivity advantage. D) comparative advantage.
Chapter 32 Comparative Advantage and the Open Economy 575
Individual Opportunity Cost
Pramilla 2 units of good X to produce 1 unit of good Y
Sam 3 units of good X to produce 1 unit of good Y
George 4 units of good Y to produce 1 unit of good X
Lucas 5 units of good Y to produce 1 unit of good X
85) Consider the opportunity costs of producing goods X and Y that are listed for the four
individuals above. Which person has a comparative advantage in producing good X?
A) Pramilla B) Sam C) George D) Lucas
86) Consider the opportunity costs of producing goods X and Y that are listed for the four
individuals above. Which person has a comparative advantage in producing good Y?
A) Pramilla B) Sam C) George D) Lucas
87) The ability to produce a good at lower opportunity costs than another producer is known as
A) comparative advantage. B) marginal cost production.
C) economies of scale. D) absolute advantage.
88) Comparative advantage is based on the
A) concept that some countries are superior to others.
B) concept of absolute advantage of producing goods in different countries.
C) concept of relative opportunity cost of producing goods in different countries.
D) concept that some countries are better endowed with natural resources.
89) Countries engaged in international trade specialize in production based on
A) relative price levels. B) relative foreign exchange rates.
C) comparative advantage. D) the differences in transportation costs.
Maximum Feasible Hourly Production Rates (in Tons) of Either
Cookies or Coffee Using All Available Resources
Product Country Alpha Country Beta
Cookies 3 8
Coffee 9 4
90) Use the above table. Assuming constant opportunity costs, the opportunity cost of producing
cookies in country Alpha is ________, and the opportunity cost of producing cookies in country
Beta is ________.
A) 0.33 ton of coffee; 2 tons of coffee B) 3 tons of coffee; 0.5 ton of coffee
C) 0.375 ton of cookies; 2.25 tons of coffee D) 2.67 tons of coffee; 0.44 ton of cookies
91) Use the above table. Assuming constant opportunity costs, the opportunity cost of producing
coffee in country Alpha is ________, and the opportunity cost of producing coffee in country
Beta is ________.
A) 0.33 ton of cookies; 2 tons of cookies B) 3 tons of cookies; 0.5 ton of cookies
C) 0.375 ton of coffee; 2.25 tons of cookies D) 2.67 tons of cookies; 0.44 ton of coffee
92) Use the above table. If these two countries, Alpha and Beta, specialize based on comparative
advantage
A) Alpha will specialize in cookies, and Beta will specialize in coffee production.
B) Alpha will specialize in producing both items.
C) Beta will specialize in producing both items.
D) Alpha will specialize in coffee, and Beta will specialize in cookies.
Chapter 32 Comparative Advantage and the Open Economy 57
7
Maximum Feasible Hourly Production Rates (in Tons) of Either
Knives or Forks Using All Available Resources
Product Country Alpha Country Beta
Knives 9 3
Forks 6 12
93) Use the above table. Assuming constant opportunity costs, the opportunity cost of producing
knives in country Alpha is ________, and the opportunity cost of producing knives in country
Beta is ________.
A) 2 forks; 0.33 knife B) 0.5 knife; 3 forks
C) 1.5 forks; 0.25 fork D) 0.67 fork; 4 forks
94) Use the above table. Assuming constant opportunity costs, if countries Alpha and Beta
specialize based on comparative advantage, then
A) Alpha should specialize in knives and Beta should specialize in forks.
B) Alpha should specialize in forks and Beta should specialize in knives.
C) Alpha should specialize in producing both items.
D) Beta should produce both items.
95) Use the above table. Assuming constant opportunity costs, if countries Alpha and Beta
specialize based on comparative advantage, then they will trade if the rate of exchange is
A) 5 knives for 1 fork, and Alpha imports forks.
B) 0.5 knives for 1 fork, and Alpha imports forks.
C) 0.5 fork for 1 knife, and Beta imports knives.
D) 6 forks for 1 knife, and Beta imports knives.
578 Miller Economics Today, 16th Edition
Maximum Feasible Hourly Production Rates (in Tons) of Either
Pizzas or Donuts Using All Available Resources
Product Country Alpha Country Beta
Pizzas 10 2
Donuts 10 12
96) Use the above table. Assuming constant opportunity costs, the opportunity cost of producing
donuts in country Alpha is ________, and the opportunity cost of producing donuts in country
Beta is ________ .
A) 1 donut; 0.17 donut B) 1 donut; 6 donuts
C) 10 donuts; 12 pizzas D) 0.2 pizza; 1.67 donuts
97) According to the above table, Alpha has comparative advantage in producing
A) pizzas. B) donuts.
C)
b
oth pizzas and donuts. D) neither pizzas nor donuts.
Maximum Feasible Hourly Production Rates (in Tons) of Either
Wine or Beef Using All Available Resources
Product Argentina France
Wine (gallons) 30 60
Beef (pounds) 10 30
98) Use the above table. Assuming constant opportunity costs, the opportunity cost of producing a
gallon of wine in Argentina is
A) 0.33 pound of beef. B) 0.5 pound of beef.
C) 2 pounds of beef. D) 3 pounds of beef.
99) Use the above table. Assuming constant opportunity costs, the opportunity cost of producing a
pound of beef in Argentina is
A) 2 gallons of wine. B) 3 gallons of wine.
C) 0.5 gallons of wine. D) 0.33 gallons of wine.
100) Use the above table. Assuming constant opportunity costs, the opportunity cost of producing a
pound of beef in France is
A) 2 gallons of wine. B) 3 gallons of wine.
C) 0.5 gallons of wine. D) 0.33 gallons of wine.
101) Use the above table. Assuming constant opportunity costs, the opportunity cost of producing a
gallon of wine in France is
A) 0.33 pound of beef. B) 0.5 pound of beef.
C) 2 pounds of beef. D) 3 pounds of beef.
102) Use the above table. Assuming constant opportunity costs, a comparative advantage in
producing wine is possessed by
A) neither Argentina or France. B)
b
oth Argentina and France.
C) Argentina. D) France.
103) Use the above table. Assuming constant opportunity costs, a comparative advantage in
producing beef is possessed by
A) neither Argentina or France. B)
b
oth Argentina and France.
C) Argentina. D) France.
104) Use the above table. Assuming constant opportunity costs, if Argentina and France specialize
based on comparative advantage, then they will trade if the rate of exchange
A) is 2.5 gallons of wine for 1 pound of beef, and Argentina imports beef.
B) 4 gallons of wine for 1 pound of beef, and France imports beef.
C) 0.2 pound of beef for 1 gallon of wine, and Argentina imports wine.
D) 8 pounds of beef for 1 gallon of wine, and France imports wine.
105) Use the above table. Assuming constant opportunity costs, if Argentina and France specialize
based on comparative advantage, then they will trade if the rate of exchange
A) is 7 gallons of wine for 1 pound of beef, and Argentina imports beef.
B) 0.25 gallons of wine for 1 pound of beef, and France imports beef.
C) 0.25 pounds of beef for 1 gallon of wine, and Argentina imports wine.
D) 0.4 pounds of beef for 1 gallon of wine, and France imports wine.
106) Specialization allows for
A) more consumption for all trading partners.
B) more consumption for the trading partner with the comparative advantage.
C) more consumption for the trading partner with the absolute advantage.
D) equal consumption among trading partners.
107) An effect of international trade is
A) the increase in the average price of goods as the cost of transportation has to be included.
B) the transmission of ideas around the world.
C) that only countries that have absolute advantage in producing a good can participate.
D) that the United States has a trade surplus.
108) If the residents of a country specialize in a good in which they have a comparative advantage
and trade with residents in another nation, the residents in the first country
A) can consume more than they could without trade.
B) can produce more than they could without trade.
C) will have a lower standard of living.
D) will be exploited by the second nation.
109) Suppose that opportunity costs are constant and that Fred can either bake a maximum of six
pies or three cakes in a day. Ethel can either produce a maximum of eight pies or two cakes in a
day. Fred s opportunity cost to produce one cake is
A) one half pie. B) two pies. C) six pies. D) four pies.
110) Suppose that opportunity costs are constant and that Fred can either bake a maximum of six
pies or three cakes in a day. Ethel can either produce a maximum of eight pies or two cakes in a
day. Ethel s opportunity cost to produce one cake is
A) one half pie. B) two pies. C) six pies. D) four pies.
111) Suppose that opportunity costs are constant and that Fred can either bake a maximum of six
pies or three cakes in a day. Ethel can produce a maximum of eight pies or two cakes in a day.
Ethel has an comparative advantage in the production of
A) cakes. B) pies.
C)
b
oth cakes and pies. D) neither cakes nor pies.
112) Suppose that opportunity costs are constant and that Fred can either bake a maximum of six
pies or three cakes in a day. Ethel can produce a maximum of eight pies or two cakes in a day.
Fred has an comparative advantage in the production of
A) cakes. B) pies.
C)
b
oth cakes and pies. D) neither cakes nor pies.
113) Why is trade based on comparative advantage?
114) How can comparative advantage yield gains from trade?
115) Everybody has a comparative advantage in something. Do you agree or disagree? Why?
116) International trade bestows benefits on countries through the international transmission of
ideas. Do you agree or disagree? Explain.
32.3 The Relationship Between Imports and Exports
1) In the long run, imports will most likely be paid for with
A) exports. B) the sale of real and financial assets.
C) the extension of credit. D) higher domestic unemployment.
2) In the long run, if imports increase, then exports
A) will not change. B) will decrease.
C) will also increase. D) will become zero.
3) Goods that are produced domestically and then sold in other countries are called
A) exports. B) imports. C) tariffs. D) quotas.
4) Goods that are produced in other countries and then sold domestically are called
A) exports. B) imports. C) tariffs. D) quotas.
5) Restricting imports usually leads to
A) a country producing beyond its production possibilities frontier.
B) a country consuming even further beyond its production possibilities frontier.
C) a reduction in exports and employment.
D) a higher per capita level of real consumption.
6) Restrictions on imports
A) eventually reduce exports, too.
B) enhance economic welfare by encouraging more exports.
C) are the quickest way for a country in recession to start on a path of economic recovery.
D) usually have no long run effects on an economy.
7) One economic truism is that any nation s restriction of imports will ultimately lead to
A) an increase in exports. B) a reduction in exports.
C) an economic upswing. D) an increase in GDP.
8) The basic proposition in international trade is that
A) trade is determined by absolute advantage.
B) in the long run, imports are paid for by exports.
C) everyone is made better off by free trade.
D) fair trade is more important than free trade.
9) In the long run, imports are paid for by
A) investment.
B) exports.
C) dollars.
D) gold or other universally accepted monies.
10) One way to reduce exports is to
A)
b
ase trade on comparative advantage. B)
b
ase trade on opportunity costs.
C) trade with poor countries. D) restrict imports.
11) Restrictions on imports
A) usually have no permanent effects on an economy.
B) is the best way to increase exports.
C) protect United States jobs.
D) eventually reduce exports.
12) Import restrictions
A) can protect United States jobs in the protected industry, which increases economic welfare
of the country as a whole.
B) can protect United States jobs in the protected industry but will also lead to job reductions
in other export industries.
C) hurt people who work in importing companies, but makes consumers better off.
D) cannot protect American jobs in any sector of the economy.
13) Restricting imports
A) can protect United States jobs in the protected industry, which increases economic welfare
of the country as a whole.
B) can protect United States final goods and services in the protected industry and makes
consumers better off.
C) can protect United States final goods and services in the protected industry and increase
economic welfare of the country as a whole.
D) can protect United States jobs in the protected industry but will also lead to reductions in
U.S. output and income.
14) When U.S. residents buy products that were made in Japan, then ultimately the Japanese want
A) yen. B) dollars.
C)
J
apanese goods. D) goods, including U.S. made goods.
15) During the Great Depression, many industrial countries tried protecting domestic jobs by
raising tariffs. Economic theory would suggest that the result would be
A) success for only the countries that raised tariffs first.
B) success for firms that had a comparative advantage in manufactured goods rather than
agricultural goods.
C) reduced exports and volume of trade for everyone.
D) increased incomes in the countries that pursued this policy.
16) It has been suggested that in order to protect U.S. jobs we need to restrict foreign competition by
restricting imports.
A) This is a sound economic statement since the U.S. will still export protecting U.S. jobs.
B) This is a sound economic statement since U.S. firms will have to increase output to make
up for the lack of imports leading to increase employment in the U.S.
C) This is not a sound economic statement since employment in the U.S. does not depend on
imports and exports.
D) This is not a sound economic statement since import restrictions lead to a reduction in
employment in the export industries of the U.S.
17) If in the long run, imports are paid for by exports, then
A) any restriction of imports ultimately reduces exports.
B) any restriction of imports ultimately expands exports.
C) any restriction of imports has no impact on exports.
D) any restriction of exports has no impact on imports.
18) If in the long run, any government policy that increases exports
A) also increases imports. B) decreases imports.
C) has no impact on imports. D) makes imports become negative.
19) Why is it impossible to make everyone better off in the long run by imposing import
restrictions?
20) It is possible to restrict imports and still maintain a fixed level of exports. Do you agree or
disagree? Why?
32.4 International Competitiveness
1) Which of the following statements is FALSE?
A) When it comes to overall productive efficiency, compared to Japan, Germany and the rest
of the European Union, the United States lags far behind.
B) Sophisticated financial systems have given U.S. productive efficiency a boost.
C) The United States international competitive position has been helped by its long history of
widespread entrepreneurship.
D) Economic restructuring and investments in information technology have added to
productive efficiency in the United States.
2) The standard of living in a nation depends on
A) how well its economy functions relative to other countries.
B) the size of the country, with larger nations always doing better than smaller ones.
C) how well the economy functions within that country.
D) whether or not its currency is adopted as the world s monetary standard.
3) One reason that U.S. exports of commercial services have increased steadily over the past
twenty five years is that
A) European and Asian nations have shown little interest in developing their own
commercial services sectors.
B) the United States has made significant investments in new information technologies.
C) the U.S. government owns and operates most of the economy s service sector.
D) the U.S. economy operates like one big corporation.