Review Questions (Chapter 3) for Econ111

1.

The production possibilities frontiers used to explain trade in the text are straight lines because: a. the author assumes the farmers can switch at a constant rate from producing meat to producing potatoes. b. that's how it turns out to be when the same person produces the two goods. c. one farmer is better than the other in producing both goods. d. the gains of trade will benefit both farmers.

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2.

The principle of Absolute Advantage refers to the situation in which one producer: a. can produce a good in greater quantities than other producers. b. can produce a good using fewer resources than other producers. c. is able to produce exactly the same quantity of a good as other producers. d. has access to more resources than other producers.

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3.

The principle of Comparative Advantage refers to the situation in which one producer: a. has a lower opportunity cost than other producers in the production of a good. b. can produce a good in greater quantities than other producers. c. has access to more resources than other producers. d. can produce a good using fewer resources than other producers.

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4.

Which of the following is true regarding the principle of Absolute Advantage? a. Nations should specialize in producing those goods for which they have a lower opportunity cost. b. Nations should export goods for which they do not have an Absolute Advantage. c. Nations should specialize in producing those goods for which they have an Absolute Advantage. d. Nations should export goods for which they have a higher opportunity cost.

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5.

Which of the following is true regarding the principle of Comparative Advantage? a. Nations should specialize in producing those goods for which they use the least amounts of resources. b. Nations should specialize in producing those goods for which they have the lowest opportunity cost. c. A nation has nothing to gain from trade if it uses fewer resources than other nations to make any good. d. A nation has nothing to gain from trade if it uses more resources than other nations to make any good.

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6.

The boy next door has offered to mow Tiger Woods' lawn. It will take this boy twice as long as Tiger Woods to mow the lawn. Would Tiger Woods let the boy mow his lawn, instead of doing it himself? a. Yes, as long as the boy's opportunity cost is less than half of Tiger Woods' opportunity cost. b. Yes, because the boy next door needs the money and Tiger Woods can help him out that way. c. No, because it will be more efficient if Tiger Woods mows his own lawn, since he can do it faster. d. No, because Tiger Woods has better things to do with his money than pay the boy to mow the lawn.

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7.

Suppose that engaging in free trade means we have to stop making cars, which will cause bankruptcies and will make people lose their jobs. Is it still worth having free trade? a. Yes, because in spite of the lost jobs, we still want to get along with other nations. b. Yes, because the gains outweigh the losses: new businesses and new jobs will flourish in other industries. c. No, because we need to protect our jobs. d. No, because our wages would have to fall drastically to make us remain competitive with low wage countries.

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8.

Suppose that Jill can type 10 pages per hour in the computer, while Jim can only type 8. Further suppose that Jill can review 5 articles per hour while Jim can only review 2. If they are working on a final project together, who should specialize in what task in order to be as productive as possible? a. Jill should specialize in typing and Jim in reviewing articles. b. Jill should specialize in reviewing articles and Jim in typing. c. Jill should perform both tasks, since she is better at both than Jim. d. Jim should perform both tasks, since he is better at both than Jill.

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9.

Suppose that Jill can type 10 pages per hour in the computer, while Jim can only type 8. Further suppose that Jill can review 5 articles per hour while Jim can only review 2. Based on this, we can say that: a. Jim has a comparative advantage over Jill in reviewing articles. b. Jill has an absolute advantage over Jim in reviewing articles. c. Jim has an absolute advantage over Jill in typing. d. Jill has a comparative advantage over Jim in typing.

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10.

The principle of Comparative Advantage argues all of the following, EXCEPT: a. specialization allows producers to produce goods for which they have a lower opportunity cost. b. free trade tends to cause bankruptcies and high unemployment in the long run. c. free trade allows producers to specialize. d. as producers specialize, overall production increases, making everybody better off.

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