CHAPTER EIGHT QUESTION POOL Flashcards
Consider the perfectly competitive market for jeans in Italy. Domestic demand is �(�) =
45 − 0.5� and domestic supply is �(�) = 0.5� − 5. Initially, Italy does not trade with other
countries. Now the government decides to open its borders to free trade. The world market
price for jeans is 25. Which of the following statements is correct?
a) Italy will export jeans and the gains from trade are 56.25.
b) None of the other answers is correct.
c) Italy will import jeans and the gains from trade are 312.5.
d) Italy will import jeans and the gains from trade are 1056.25.
C
Consider the model of free trade between countries which we discussed in class. Which of the
following statements is correct?
a) The increase in consumer surplus in the importing country is bigger than the decrease in
producer surplus in the importing country.
b) None of the other answers is correct.
c) Free trade reduces producer surplus in the exporting country, but increases producer
surplus in the importing country.
d) Free trade reduces social surplus in the importing country, but increases social surplus in
the exporting country.
A
A curve that shows the various combinations of goods and services that are possible for an
economy to produce with a given amount of resources is referred to as a(n) ____.
a) supply curve
b) indifference curve
c) budget constraint
d) production possibilities curve
D
Jim works 10 hours a day to produce t-shirts and shoes. He needs 5 hours to produce a t-shirt
and 2 hours to produce a pair of shoes. Anna works 10 hours a day to also
produce t-shirts and shoes. She needs 5 hours to produce a t-shirt and 4 hours to produce a
pair of shoes. Which of the following statements is true?
a) Jim has a comparative advantage in the production of t-shirts.
b) Anna has an absolute advantage in the production of t-shirts.
c) Anna has a comparative advantage in the production of t-shirts.
d) Jim has an absolute advantage in the production of shoes.
D
Peter and Paul both produce apples and oranges. Which of the following statements is true?
a) Peter must have an absolute advantage in the production of either apples or oranges.
b) Peter must have a comparative advantage in the production of apples.
c) It is possible that Peter has a comparative advantage in the production of apples and a
comparative advantage in the production of oranges.
d) Peter can have a comparative advantage in the production of apples and an absolute
advantage in the production of oranges.
D
The principle of comparative advantage does not provide answers to certain questions. One of
those questions is as follows:
a) Is it possible for specialization and trade to increase total output of traded goods?
b) Do opportunity costs play a role in people’s decisions to specialize in certain activities? (C)
c) What determines the price at which trade takes place?
d) Is it possible for specialization and trade to benefit more than one party to a trade?
C
Anne works 10 hours per day to produce cheese and cornflakes. She needs 1 hour for 1kg of
cheese and 1 hour for 1kg of cornflakes. Carl works 10 hours per day to also produce cheese
and cornflakes. He needs 1 hour for 1kg of cheese and 2 hours for 1kg of cornflakes. Which
of the following statements is correct?
a) Anne has a comparative advantage in the production of corn flakes.
b) Carl has an absolute advantage in the production of corn flakes.
c) Carl has an absolute advantage in the production of cheese.
d) Carl has a comparative advantage in the production of cornflakes.
A
Consider the perfectly competitive market for computers in Denmark. Domestic demand is
Q(P)=50−6P and domestic supply is Q(P)=2+6P. Initially, Denmark does not trade with other
countries. Now the government decides to open its borders to free trade. The world market
price for computers is 6. Which of the following statements is correct?
a) None of the other answers is correct.
b) Denmark will import computers and the gains from trade are 48.
c) Denmark will export computers and the gains from trade are 48.
d) Denmark will export computers and the gains from trade are 12.
A
Consider the model of free trade between countries which we discussed in class. Which of the
following statements is correct?
a) None of the other answers is correct.
b) Thegainsfromtradearealwaysbiggerintheexportingthanintheimportingcountry.
c) In the importing country consumer surplus will be lower and producersurplus will be higher.
d) The gains in producer surplus in the exporting country are bigger than the losses in
consumer surplus in the exporting country.
D
