Chapter3 InterdependenceandtheGainsfromTrade

1. Theslopeoftheproductionpossibilitiesfrontierisdeterminedby a. theopportunitycostofproducingonemoreunitofthegoodonthehorizontalaxis. b. themarketpricesofthegoodsthattheeconomycanproduce. c. thedistributionofincomesintheeconomy. d. whetherproductionisperformedusingefficientorinefficientmethods. ANSWER:a theopportunitycostofproducingonemoreunitofthegoodonthehorizontalaxis. SECTION:1 OBJECTIVE:1 2. Theproductionpossibilitiesfrontierisadownwardslopingstraightlinewhenthe a. opportunitycostofproducingeachgooddependsontheamountproduced. b. technologyofproductionisconstant. c. opportunitycostofproducingeachgoodisindependentoftheamountofthegoodproduced. d. economyisindustrialized. ANSWER:c opportunitycostofproducingeachgoodisindependentoftheamountofthegood produced. SECTION:1 OBJECTIVE:1 3. Involuntaryexchangebetweentwocountries,ifonecountrygainsthen a. theothermustlose,unlesstheexchangegeneratesexternalcosts. b. theothercountrymustloseunderanycircumstances. c. theothercountrymustloseanequalamount. d. thereisnoreasontoexpectthattheothercountrymustlose. ANSWER:d thereisnoreasontoexpectthattheothercountrymustlose. SECTION:1 OBJECTIVE:1 4. Internationaltradetendstooccurwhenever a. laborischeaperinonecountrythaninanother. b. oneofthetradingnationsisselfsufficientandproducingsurplusgoods. c. onenationcanprofitfromtradeattheexpenseoftheother. d. bothnationscanbenefitfromtrade. ANSWER:d bothnationscanbenefitfromtrade. SECTION:1 OBJECTIVE:1

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14 3 Chapter 3/Interdependence and the Gains from Trade 5. IfJapancanproduceeachunitofsteelusingfewerresourcesthanCanadadoes, a. Canadahasanabsoluteadvantageinsteelproduction. b. Japanhasanabsoluteadvantageinsteelproduction. c. Japanhasacomparativeadvantageinsteelproduction. d. Canadahasacomparativeadvantageinsteelproduction. ANSWER:b Japanhasanabsoluteadvantageinsteelproduction. SECTION:2 OBJECTIVE:2 6. Whichofthefollowingstatementsistrue? a. Exportstendtodecreaseeconomicefficiency. b. Anationshouldspecializeinproducingagoodinwhichithasanabsoluteadvantage. c. Anationshouldspecializeinproducingagoodonlywhenithasbothanabsoluteanda comparativeadvantage. d. Anationshouldspecializeinproducingagoodinwhichithasacomparativeadvantage. ANSWER:d Anationshouldspecializeinproducingagoodinwhichithasacomparativeadvantage. SECTION:2 OBJECTIVE:2 7. SupposeRussiahasanabsoluteadvantageintheproductionofallgoods.Inthisinstance,Russia a. willhavenoincentivetoengageininternationaltrade. b. shouldspecializeinproducingthegoodsforwhichithasaloweropportunitycostthanother countries. c. alsohasacomparativeadvantageintheproductionofthosegoods. d. isproducingatapointonitsproductionpossibilitiesfrontier. ANSWER:b shouldspecializeinproducingthegoodsforwhichithasaloweropportunitycostthan othercountries. SECTION:2 OBJECTIVE:2 8. Whatcanbesaidregardingabsoluteadvantageinproductionforthetwocountriesshowninthis figure? Numberofworkersneededtoproduceoneunitofeachofthefollowinggoods: Korea Columbia 1Radio 3 4 1Calculator 6 2 a. Colombiahasanabsoluteadvantageinproducingbothcalculatorsandradios. b. Koreaonlyhasanabsoluteadvantageinproducingcalculators. c. Koreahasanabsoluteadvantageinproducingbothradiosandcalculators. d. Columbiaonlyhasanabsoluteadvantageinproducingcalculators. ANSWER:d Columbiaonlyhasanabsoluteadvantageinproducingcalculators. SECTION:2 OBJECTIVE:2

Chapter 3/Interdependence and the Gains from Trade 3 15 9. Whichofthefollowingwillchangeanationscomparativeadvantage? a. atechnologicaladvanceinproducingmanufacturedgoods b. adoublingofallwages c. quotasonimports d. achangeinconsumerspreferencesforimportedgoods ANSWER:a atechnologicaladvanceinproducingmanufacturedgoods SECTION:2 OBJECTIVE:2 10. Ifanationdoesnothaveanabsoluteadvantageinproducinganything,it a. hasnocomparativeadvantageeither. b. couldhaveacomparativeadvantageinsomething. c. willtrytogetalongwithouttrade. d. willexportrawmaterialsandimportfinishedproducts. ANSWER:b couldhaveacomparativeadvantageinsomething. SECTION:2 OBJECTIVE:2 11. Inthemarketplace,JohnvoluntarilysellshislasttwoloavesofbreadtoMaryfor$2.Wecaninfer thatthiswillbenefit a. bothJohnandMary. b. Mary,butnotJohn,sincetheseareJohnslasttwoloavesofbread. c. Mary,whileimposingacostonJohnequaltothebenefitMaryreceives. d. neitherJohnnorMary. ANSWER:a bothJohnandMary. SECTION:2 OBJECTIVE:3 12. Tradebasedoneachcountryscomparativeadvantageis a. economicallyefficientbecausebothcountriesarebetteroffthantheywerebeforetheytraded. b. economicallyinefficientbecausethecountrywiththeabsoluteadvantageismadeworseoff. c. ineffectiveinimprovingefficiency,sinceonecountrysgainwillbeoffsetbytheothercountrys loss. d. economicallyefficientonlyifeachcountryalsohastheabsoluteadvantageinproducingtheir good. ANSWER:a economicallyefficientbecausebothcountriesarebetteroffthantheywerebeforethey traded. SECTION:2 OBJECTIVE:3 13. IfArmeniacanproducetworugsor100spynovelsinanhour,andTurkeycanproduceonerugor 50spynovelsinanhour a. Turkeyshouldproducebothrugsandspynovels. b. Turkeyshouldproduceonlyrugs. c. Armeniashouldproduceonlyrugs. d. therearenogainsfromtradebetweenthesetwocountrieswiththesetwogoods. ANSWER:d therearenogainsfromtradebetweenthesetwocountrieswiththesetwogoods. SECTION:2 OBJECTIVE:3

16 3 Chapter 3/Interdependence and the Gains from Trade 14. Supposethesediagramsdepicttheproductionpossibilitiesfrontiersofwheatandcornfortwo countries,theUnitedStatesandCanada.WhatisthemostwheattheU.S.wouldbewillingtotrade foroneunitofCanadascorn? a. 1/3 b. 1/4 c. 3 d. 4 ANSWER:d 4 SECTION:2 OBJECTIVE:3 15. Supposethesediagramsdepicttheproductionpossibilitiesfrontiersofwheatandcornfortwo countries,theUnitedStatesandCanada.WhatisthemostcorntheCanadawouldbewillingto tradeforoneunitofU.S.wheat? a. 1/3 b. 1/4 c. 3 d. 4 ANSWER:d 4 SECTION:2 OBJECTIVE:3 16. AgoodproducedinJapanandsoldtoKorea a. isaKoreanexportandJapaneseimport. b. isaKoreanimportandJapaneseexport. c. impliesthatJapanhasanabsoluteadvantageintheproductionofthegood. d. impliesthatKoreahasacomparativeadvantageintheproductionofthegood. ANSWER:b isaKoreanimportandJapaneseexport. SECTION:3 OBJECTIVE:4 17. Anationshouldonlyimportthosegoodsforwhichithas a. loweropportunitycoststhanitstradingpartner. b. higheropportunitycoststhanitstradingpartner. c. zerotransactionscosts. d. lowercostsofproductionthanitstradingpartner. ANSWER:b higheropportunitycoststhanitstradingpartner. SECTION:3 OBJECTIVE:4

Chapter 3/Interdependence and the Gains from Trade 3 17 Jillcansewachildsdressin3hoursandcanknitababysblanketin2hours.Sarahcansewachilds dressin6hoursandcanknitababysblanketin3hours.Usethisinformationtoanswerthefollowing questions. 18. WecaninferthatJillhasthecomparativeadvantagein a. sewing. b. knitting. c. bothactivities. d. neitheractivities. ANSWER:a sewing. SECTION:2 OBJECTIVE:2

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WeknowthatSarahhasthecomparativeadvantagein a. sewing. b. knitting. c. bothactivities. d. neitheractivities. ANSWER:b knitting. SECTION:2 OBJECTIVE:2 20. Jillshouldspecializein a. sewing. b. knitting. c. bothactivities. d. neitheractivities. ANSWER:a sewing. SECTION:2 OBJECTIVE:2 21. Sarahshouldspecializein a. sewing. b. knitting. c. bothactivities. d. neitheractivities. ANSWER:b knitting. SECTION:2 OBJECTIVE:2

18 3 Chapter 3/Interdependence and the Gains from Trade 22. WhichofthefollowingdescribestheproductionpossibilitiesfrontierforJillandSarahtogetherif eachworksfor12hours?Theinterceptonthedressaxisis__________unitsandtheintercepton theblanketaxisis__________units. a. 10;6 b. 9;5 c. 4;4 d. 6;10 ANSWER:d 6;10 SECTION:2 OBJECTIVE:3 23. Giventheaboveinformation,JillwouldtradeherdressesforSarahsblanketsifthepriceofadress intermsofblanketswas a. lessthan2/3blanketsfor1dress. b. morethan2blanketsfor1dress. c. atleast3/2blanketsfor1dress. d. JillwouldnevertradewithSarah. ANSWER:c atleast3/2blanketsfor1dress. SECTION:3 OBJECTIVE:4 24. Giventheaboveinformation,SarahwouldtradeherblanketsforJillsdressesifthepriceofa blanketintermsofdresseswas a. morethan1/2dressforoneblanket. b. lessthan1/2dressforoneblanket. c. morethan2/3dressfor1blanket. d. SarahwouldnevertradewithJill. ANSWER:a morethan1/2dressforoneblanket. SECTION:3 OBJECTIVE:4 25. WhichofthefollowingwouldbeamutuallyagreeablerateofexchangebetweenJillandSarahfor dressesandblankets? a. lessthan1/2dressfor1blanket. b. morethan2/3dressfor1blanket. c. between1/2and2/3dressfor1blanket. d. between2/3and2dressesfor1blanket. ANSWER:c between1/2and2/3dressfor1blanket. SECTION:3 OBJECTIVE:4