Ch.3: Interdependence and the Gains from Trade

Question 1

____ 1. People who provide you with goods and services

Answer 1

do so because they get something in return.

Question 2

____ 2. Refer to Table 3-1. The Farmer has an absolute advantage in

Answer 2

potatoes, and the Rancher has an absolute advantage in meat.

Question 3

____ 3. Refer to Table 3-1. The Farmer has an absolute advantage in

Answer 3

potatoes, and the Rancher has a comparative advantage in meat.

Question 4

____ 4. Refer to Figure 3-2. For Ben the opportunity cost of 1 pound of cones is

Answer 4

d. 1/4 pound of ice cream.

Question 5

____ 5. Refer to Figure 3-2. Ben has a comparative advantage in

Answer 5

cones and Jerry has a comparative advantage in ice cream.

Question 6

____ 6. Refer to Figure 3-2. Ben has an absolute advantage in

Answer 6

cones and Jerry has an absolute advantage in ice cream.

Question 7

____ 7. Refer to Figure 3-2. Ben has a comparative advantage in

Answer 7

cones and Jerry has an absolute advantage in ice cream.

Question 8

8. Refer to Figure 3-2. Ben and Jerry were currently both producing at point A on their production possibilities
   frontier and then Ben decided he would be willing to trade 4 pounds of cones to get 2 pounds of ice cream
   from Jerry. If both decided to specialize in what they had a comparative advantage in and trade, the gains
   from trade would be

Answer 8

b. 1 pound of ice cream for Ben and 1 pound of cones for Jerry.

Question 9

9. Refer to Table 3-2. The opportunity cost of 1 dress for Carolyn is

Answer 9

c. 1/5 quilt.

Question 10

____ 10. Refer to Table 3-2. Helen and Carolyn both could benefit by Helen specializing in

Answer 10

quilts and Carolyn specializing in dresses.

Question 11

____ 11. Refer to Table 3-2. Helen has a comparative advantage in

Answer 11

quilts and Carolyn has a comparative advantage in dresses.

Question 12

____ 12. Refer to Figure 3-3. Ginger has a comparative advantage in

Answer 12

c. ballet slippers and Fred has a comparative advantage in tap shoes.

Question 13

____ 13. Refer to Figure 3-3. Fred should produce

Answer 13

only tap shoes.

Question 14

____ 14. Refer to Figure 3-3. Ginger has an absolute advantage in

Answer 14

ballet slippers and Fred has a comparative advantage in tap shoes.

Question 15

____ 15. Refer to Figure 3-3. Ginger should specialize in

Answer 15

ballet slippers and Fred should specialize in tap shoes.

Question 16

____ 16. Using all available resources, if a farmer can produce either 85 cantaloupes or 70 watermelons, then the
opportunity cost of 1 cantaloupe to the farmer would be

Answer 16

a. .82 watermelons.

Question 17

____ 17. Refer to Table 3-3. The opportunity cost of 1 basket for Montana is

Answer 17

c. 3 birdhouses.

Question 18

____ 18. Refer to Table 3-3. The opportunity cost of 1 birdhouse for Montana is

Answer 18

a. 1/3 basket.

Question 19

____ 19. Comparative advantage is based on

Answer 19

d. opportunity costs.

Question 20

____ 20. The country that has a comparative advantage in a product

Answer 20

b. should export that product.

Question 21

____ 21. The producer that can produce a product with lower opportunity cost

Answer 21

has a comparative advantage in the production of that good.

Question 22

____ 22. The term which means whatever must be given up to obtain an item is

Answer 22

c. opportunity cost.

Question 23

____ 23. Absolute advantage is found by

Answer 23

comparing the productivity of one nation to that of another.

Question 24

____ 24. Which of the following would NOT occur if each person specializes in the good for which they have a
comparative advantage?

Answer 24

Each person’s production possibilities frontier will shift outward.

Question 25

____ 25. Mike and Sandy are two woodworkers who both make tables and chairs. In one month, Mike can make 4
tables or 20 chairs, where Sandy can make 6 tables or 18 chairs. Given this, we know that

Answer 25

Mike has an absolute advantage in chairs.

Question 26

____ 26. Refer to Figure 3-4. The opportunity cost of 1 pie for Betty is

Answer 26

d. 4/3 loaves of bread.

Question 27

____ 27. Refer to Figure 3-4. If Barney and Betty both specialize in the good in which they have a comparative
advantage, total production of bread will be

Answer 27

b. 20 and total production of pies will be 14.

Question 28

____ 28. Refer to Table 3-4. The opportunity cost of 1 car for the United States is

Answer 28

d. 1/4 airplane.

Question 29

____ 29. Refer to Table 3-4. Japan has an absolute advantage in

Answer 29

airplanes and the United States has a comparative advantage in cars.

Question 30

____ 30. Refer to Table 3-4. If the United States and Japan trade based on the principle of comparative advantage, the
United States will export what product to Japan?

Answer 30

a. cars

Question 31

____ 31. Refer to Table 3-4. If the United States and Japan trade based on the principle of comparative advantage, the
United States will export

Answer 31

cars and Japan will export airplanes.

Question 32

____ 32. Refer to Table 3-4. If Japan and the United States trade based on the principle of comparative advantage,

Answer 32

some individuals within each society will be made worse off.

Question 33

____ 33. A tax placed on imported goods is called

Answer 33

b. a tariff.

Question 34

____ 34. David Ricardo, a millionaire stockbroker and economist

Answer 34

opposed the Corn Laws as a member of Parliament.

Question 35

____ 35. If Karl Malone (1997 NBA MVP) is a better basketball player and truck driver than Gregory Mankiw (the
author of your economics text), which of the following is true?

Answer 35

d. Karl Malone and Gregory Mankiw may benefit from trade.

Question 36

____ 36. Refer to Table 3-5. The opportunity cost of 1 unit of cheese in England is

Answer 36

c. 1/2 bread.

Question 37

____ 37. Refer to Table 3-5. If England and Spain trade based on the principle of comparative advantage, Spain will
export which product to England?

Answer 37

c. cheese

Question 38

____ 38. Refer to Table 3-5. If England and Spain trade based on the principle of comparative advantage, England will
export

Answer 38

bread and Spain will export cheese.

Question 39

____ 39. 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 for 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

Answer 39

b. 300 televisions and 100 radios in Teeveeland and 300 radios and 100 televisions in
Radioland.

Question 40

____ 40. Suppose that a worker in Boatland can produce either 5 units of wheat or 25 units of fish per year, and a
worker 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 the wheat lobby in Boatland has
prevented trade between the two countries on the grounds that cheap imports would kill the fish industry in
Farmland 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
specialize in the product for which it has a comparative advantage. If trade were to occur, by how much
would the combined output of the two countries increase?

Answer 40

d. 100 wheat and 100 fish.