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Multiple ChoiceEdit

1. People who provide you with goods and services

  • a. are acting out of generosity.
  • b. do so because they get something in return.
  • c. have chosen not to become interdependent.
  • d. aran those who buy the goods and services.

2. Trade between countries

  • a. allows each country to consume at a point outside its production possibilities frontier.
  • b. limits a country’s ability to produce goods and services on its own.
  • c. must benefit both countries equally; otherwise, trade is not mutually beneficial.
  • d. can best be understood by examining the countries’ absolute advantages.
  • e. can only benefit one country at the expense of the other country.
Figure 3-1

Figure 3-1









3. Refer to Figure 3-1. The opportunity cost of 1 novel for Jordan is

  • a. 1/3 poem.
  • b. 3 poems.
  • c. 4 poems.
  • d. 12 poems.
  • e. 2 poems.
Table 3-1
Labor Hours Needed... ...to Make 1 Pound of Pounds Produced... ...in 40 Hours
Meat Potatoes Meat Potatoes
Farmer 10 2 4 20
Rancher 4 8 10 5

4. Refer to Table 3-1. The opportunity cost of 1 pound of meat for the rancher is

  • a. 1/2 pound of potatoes.
  • b. 2 hours of labor.
  • c. 2 pounds of potatoes.
  • d. 4 hours of labor.
  • e. 5 pounds of potatoes.
Table 3-2
Labor Hours Needed... ...to Make 1 Unit of Number of Units... ...Produced in 40 Hours
Cheese Bread Cheese Bread
England 1 4 40 10
Spain 4 8 10 5

5. Refer to Table 3-2. The opportunity cost of 1 unit of bread for Spain is

  • a. 1/2 unit of cheese.
  • b. 1/2 hour of labor.
  • c. 2 units of cheese.
  • d. 8 hours of labor.
  • e. 5 units of cheese.

6. Refer to Table 3-2. England has

  • a. an absolute advantage in cheese and Spain has an absolute advantage in the production of bread.
  • b. an absolute advantage in bread and Spain has an absolute advantage in the production of cheese.
  • c. an absolute advantage in both goods and Spain has a comparative advantage in bread.
  • d. an absolute advantage in neither good and Spain has a comparative advantage in cheese.
  • e. an absolute advantage in neither good and Spain has a comparative advantage in bread.

7. Refer to Table 3-2. England should export

  • a. cheese and import bread.
  • b. bread and import cheese.
  • c. both goods and import neither good.
  • d. neither good and import both goods.
  • e. neither good and import only cheese.

8. Which of the following statements about comparative advantage is not true?

  • a. Comparative advantage is determined by which person or group of people can produce a given quantity of a good using the fewest resources.
  • b. The principle of comparative advantage applies to countries as well as to individuals.
  • c. Economists use the principle of comparative advantage to emphasize the potential benefits of free trade.
  • d. A country may have a comparative advantage in producing a good, even though it lacks an absolute advantage in producing that good.
  • e. When two nations trade based on comparative advantage, both nations benefit.

9. Economists generally support

  • a. trade restrictions.
  • b. government management of trade.
  • c. export subsidies.
  • d. free international trade.
  • e. protectionism.

10. Suppose Jim and Tom can each produce two goods: baseball bats and hockey sticks. Which of the following is not possible?

  • a. Jim has an absolute advantage in the production of baseball bats and in the production of hockey sticks.
  • b. Jim has an absolute advantage in the production of baseball bats and a comparative advantage in the production of hockey sticks.
  • c. Jim has an absolute advantage in the production of hockey sticks and a comparative advantage in the production of baseball bats.
  • d. Jim has a comparative advantage in the production of baseball bats and in the production of hockey sticks.
  • e. Tom has an absolute advantage in the production of baseball bats and in the production of hockey sticks.

11. The following table contains some production possibilities for an economy for a given year. If the production possibilities frontier is bowed outward, then “?” could be

Cars Newspapers
10 400
12 360
14 ?
  • a. 400.
  • b. 340.
  • c. 330.
  • d. 320.
  • e. 310.

12. When each person specializes in producing the good in which he or she has a comparative advantage, total production in the economy

  • a. falls and producers and consumer both lose.
  • b. rises and producers gain and consumers lose.
  • c. rises and both consumers and producers gain.
  • d. rises and consumers gain and producers lose.
  • e. may fall, rise, or stay the same, and the effect on consumers and producers is impossible to predict.


  1. A
  2. C
  3. C
  4. A
  5. A
  6. D
  7. D
  8. E
  9. C

Free ResponseEdit

1. The only two countries in the world, Alpha and Omega, face the following production possibilities frontiers.

Free Response 3-1

Free Response 3-1










  • a. Assume that each country decides to use half of its resources in the production of each good. Show these points on the graphs for each country as point A.
  • b. If these countries choose not to trade, what would be the total world production of popcorn and peanuts?
  • c. Now suppose that each country decides to specialize in the good in which each has a comparative advantage. By specializing, what is the total world production of each product now?
  • d. If each country decides to trade 100 units of popcorn for 100 units of peanuts, show on the graphs the gain each country would receive from trade. Label these points B.

2. Gary and Diane must prepare a presentation for their marketing class. As part of their presentation, they must do a series of calculations and prepare fifty PowerPoint® slides. It would take Gary ten hours to do the required calculation and ten hours to prepare the slides. It would take Diane twelve hours to do the calculations and twenty hours to prepare the slides.

  • a. How much time would it take the two to complete the project if they divide the calculations equally and the slides equally?
  • b. How much time would it take the two to complete the project if they use comparative advantage and specialize in calculating or preparing slides?
  • c. If Diane and Gary have the same opportunity cost of $5 per hour, is there a better solution than for each to specialize in calculating or preparing slides?

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