Econ Exam 1

Differences in comparative advantages among nations result from:
A. different endowments of fertile soil.
B. different amounts of skilled labor.
C. different levels of technological knowledge.
D. all of these

all of these

Countries engaged in international trade specialize in production based on

comparative advantage

In order for mutually beneficial trade to occur between two otherwise isolated nations

each nation must be able to produce at least one good relatively cheaper than the other

On the basis of the above information(Gamma)

Gamma should export tea to Sigma and Sigma should export pots to Gamma

Refer to the above data. What are the limits of the terms of trade between Gamma and Sigma?

1 tea = 1 pot to 1 tea = 3 pots

Refer to the above data. Assume that before specialization and trade Gamma and Sigma both chose production possibility "C." Now if each specializes according to comparative advantage, the gains from specialization and trade will be

40 tons of tea

The terms of trade reflect the

ratio at which nations will exchange two goods

The above data indicate that production in(Latalia)

both Latalia and Trombonia is subject to constant opportunity costs

Refer to the above tables. In Latalia the domestic opportunity cost of 1 ton of pork

is 5 tons of beans

Refer to the above tables. If these two nations specialize on the basis of comparative advantage(Latalia)

Latalia will produce beans and Trombonia will produce pork

Refer to the above tables. Assume that before specialization and trade, Latalia produced combination C and Trombonia produced combination B. If these two nations now specialize completely based on comparative advantage, the total gains from specialization and trade will be

4 tons of beans

Refer to the above tables. Which of the following would be feasible terms for trade between Latalia and Trombonia?

4 tons of beans for 1 ton of pork

In the theory of comparative advantage, a good should be produced in that nation where

its cost is least in terms of alternative goods that might otherwise be produced

Refer to the above information. In Singsong the domestic real cost of each chicken

is ½ a fish

Refer to the above information. If these two nations specialize based on comparative advantage(Harmony)

Harmony will produce chicken and Singsong will catch fish

Refer to the above information. Which one of the following would not be feasible terms for trade between Singsong and Harmony?

1 chicken for 1/5 of a fish

The most important benefit of international specialization & trade is

greater production than would be attainable through domestic production alone

The production possibilities curves above suggest that

West Mudville should specialize in, and export, baseball bats

The impact of increasing, as opposed to constant, costs is to

cause countries to avoid complete specialization in producing only one good

In the real world, specialization is rarely complete because

nations normally experience increasing opportunity costs in producing more of the product in which they are specializing

The law of increasing opportunity costs

may limit the extent to which a nation specializes in producing a particular product

People face trade-offs because of

scarcity

"There is no such thing as a free lunch" is a saying that expresses the idea that

opportunity costs are incurred whenever a choice is made

The "invisible hand" is a term that was coined by _____ .

Adam Smith

Suppose you see the PFF frontier for the U.S. economy, and you observe the economy is operating inside the Curve. This would indicate:
a. some of society's additional wants could be satisfied without sacrificing any other goods
b. the economy can produce more of all goods currently being produced
c. some resources are either unemployed or underemployed
d. all of the above

all of the above

The PPC shifts outward in response to

improved technology or more resources or both

Which of the following purchases is likely to have the highest transactions costs?

a house

Through war, many of the factories in some country are destroyed and many of its people are killed. As a result, the country's

PPF after the war is probably closer to the origin than its PPF before the war

Consider a PPF framework with consumer goods on the horizontal axis and business equipment on the vertical. A technological advance that makes inputs better at producing both CG and BE would have the same effect on the PPF as

a. an increase in the size of the labor force through immigration
b. an increase in the amount of land and capital available for production

The U.S.'s opportunity costs of producing bread is ______ and France's opportunity costs of producing wine is ____.

1/2; 1/6

The country with the absolute advantage in making bread is ______ and the country with the absolute advantage in producing wine is _____.

France; U.S

The country with the comparative advantage in making bread is ____ and the country with the absolute advantage in producing wine is ____.

U.S.; France

In the PPF diagram, a country can attain a combination of goods that lies beyond its PPF only by

specializing according to comparative advantage and exchanging with other countries

_____ has the absolute advantage in producing Bats and _____ has the absolute advantage in producing Baseballs

West Mudville; West Mudville

East Mudville's opportunity cost of producing Bats is _____ Baseballs per Bat, and West Mudville's opportunity cost of producing Baseballs is _____ Bats per Baseball.

2; 1

_____ has the comparative advantage in producing Bats and _____ has the comparative advantage in producing Baseballs.

West Mudville; East Mudville

In order to increase production and living standards, how should these two economies specialize and trade with each other?

West Mudville should specialize in, and export, Bats.

People and nations differ in their comparative advantages because of:
a. relative scarcities of productive inputs (e.g. fertile soil)
b. different skills in labor
c. different technologies
d. different amount and variety of capital goods
e. all of the above

all of the above

Consider the three Production Possibilities Frontiers in the diagram above. A move from PPF 1 to PPF 2 could happen as a result of an increase in:
a. labor that is skilled in producing Consumption Goods but not Investment Goods
b. technology that makes capital and labor more productive in Consumption Goods but not Investment Goods
c. capital that is tailored to assembling Consumer Goods only.
d. all of the above

all of the above

Consider the three Production Possibilities Frontiers in the diagram above. A move from PPF 3 to PPF 1 could happen as a result of

war that destroys a large supply of capital and labor

Consider the three Production Possibilities Frontiers in the diagram above. An economy can enjoy a combination of Investment Goods and Consumption goods outside PPF 3:
a) if there is specialization according to comparative advantage coupled with trade between this economy and another
b) if there is economic growth that shifts the PPF further outward compared to PPF 3
c) if the unemployment rate decreases
d) all of the above
e) both (a) and (c)

both (a) and (c)
a. if there is specialization according to comparative advantage coupled with trade between this economy and another
c. if the unemployment rate decreases

The United States and other developed economies are wealthy. In terms of basic economic principles, how is wealth created in society?

people specialize according to comparative advantage and engage in mutually beneficial exchange

Sylvia's opportunity cost of building one deck is $_____ and Gini's opportunity cost of designing one website is $_____.

2000; 1200

If Sylvia and Gini specialize according to comparative advantage then Sylvia will only _______ and Gini will only ______.

design websites; build decks

If Sylvia and Gini specialize according to comparative advantage and exchange with each other, Sylvia will gain $_______ and Gini will gain $_______.

d. 500; 200