Chapter 3Interdependence and the Gains from Trade1. The slope of the production possibilities frontier is determined by a. the opportunity cost of producing one more unit of the good on the horizontal axis. b. the market prices of the goods that the economy can produce. c. the distribution of incomes in the economy. d. whether production is performed using efficient or inefficient methods.2. The production possibilities frontier is a downward-sloping straight line when the a. opportunity cost of producing each good depends on the amount produced. b. technology of production is constant. c. opportunity cost of producing each good is independent of the amount of the good produced. d. economy is industrialized.3. In voluntary exchange between two countries, if one country gains then a. the other must lose, unless the exchange generates external costs. b. the other country must lose under any circumstances. c. the other country must lose an equal amount. d. there is no reason to expect that the other country must lose.4. International trade tends to occur whenever a. labor is cheaper in one country than in another. b. one of the trading nations is self sufficient and producing surplus goods. c. one nation can profit from trade at the expense of the other. d. both nations can benefit from trade.5. If Japan can produce each unit of steel using fewer resources than Canada does, a. Canada has an absolute advantage in steel production. b. Japan has an absolute advantage in steel production. c. Japan has a comparative advantage in steel production. d. Canada has a comparative advantage in steel production.6. Which of the following statements is true? a. Exports tend to decrease economic efficiency. b. A nation should specialize in producing a good in which it has an absolute advantage. c. A nation should specialize in producing a good only when it has both an absolute and a comparative advantage. d. A nation should specialize in producing a good in which it has a comparative advantage.7. Suppose Russia has an absolute advantage in the production of all goods. In this instance, Russia a. will have no incentive to engage in international trade. b. should specialize in producing the goods for which it has a lower opportunity cost than other countries. c. also has a comparative advantage in the production of those goods. d. is producing at a point on its production possibilities frontier.8. What can be said regarding absolute advantage in production for the two countries shown in this figure? Number of workers needed to produce one unit of each of the following goods: Korea Columbia 1 Radio 3 4 1 Calculator 6 2 a. Colombia has an absolute advantage in producing both calculators and radios. b. Korea only has an absolute advantage in producing calculators. c. Korea has an absolute advantage in producing both radios and calculators. d. Columbia only has an absolute advantage in producing calculators.9. Which of the following will change a nation’s comparative advantage? a. a technological advance in producing manufactured goods b. a doubling of all wages c. quotas on imports d. a change in consumers’ preferences for imported goods10. If a nation does not have an absolute advantage in producing anything, it a. has no comparative advantage either. b. could have a comparative advantage in something. c. will try to get along without trade. d. will export raw materials and import finished products.11. In the marketplace, John voluntarily sells his last two loaves of bread to Mary for $2. We can infer that this will benefit a. both John and Mary. b. Mary, but not John, since these are John’s last two loaves of bread. c. Mary, while imposing a cost on John equal to the benefit Mary receives. d. neither John nor Mary.12. Trade based on each country’s comparative advantage is a. economically efficient because both countries are better off than they were before they traded. b. economically inefficient because the country with the absolute advantage is made worse off. c. ineffective in improving efficiency, since one country’s gain will be offset by the other country’s loss. d. economically efficient only if each country also has the absolute advantage in producing their good.
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