Prin of Econ MacroEcon CH3.docx

Prin of Econ MacroEcon CH3.docx

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PrinofEconMacroEconCH3

Chapter3

InterdependenceandtheGainsfromTrade

MULTIPLECHOICE

1.Peoplewhoprovideyouwithgoodsandservices

a.areactingoutofgenerosity.

b.areactingbecausetheylikeyou.

c.dosobecausetheygetsomethinginreturn.

d.arerequiredtodosobygovernment.

ANSWER:

c.dosobecausetheygetsomethinginreturn.

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2.Aranchercanproduceonlyhamburgers,andafarmercanproduceonlyfrenchfries.Therancherandthefarmerbothlikebothfoods.They

a.cannotgainfromtrade.

b.couldgainfromtradeundercertaincircumstances,butnotalways.

c.couldgainfromtradebecauseeachwouldenjoyagreatervarietyoffood.

d.couldgainfromtradeonlyifeachwereindifferentbetweenhamburgersandfrenchfries.

ANSWER:

c.couldgainfromtradebecauseeachwouldenjoyagreatervarietyoffood.

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3.Regangrowsflowersandmakesceramicvases.Jaysonalsogrowsflowersandmakesvases,butReganisbetteratproducingboth.Inthiscase,tradecould

a.benefitbothJaysonandRegan.

b.benefitJayson,butnotRegan.

c.benefitRegan,butnotJayson.

d.notbenefitJaysonnorRegan.

ANSWER:

a.benefitbothJaysonandRegan.

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4.Withouttrade

a.acountryisbetteroffbecauseitwillbecomeself-sufficient.

b.acountry’sproductionpossibilitiesfrontierisalsoitsconsumptionpossibilitiesfrontier.

c.acountrycanstillbenefitfrominternationalspecialization.

d.moreproductvarietyisavailableinacountry.

ANSWER:

b.acountry’sproductionpossibilitiesfrontierisalsoitsconsumptionpossibilitiesfrontier.

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5.Withtradea

a.countryisworseoffbecauseitbecomesdependentonothercountries.

b.countrywillproduceagreatervarietyofgoodsandservicestotrade.

c.country’sconsumptionpossibilitiesfrontiercanbeoutsideitsproductionpossibilitiesfrontier.

d.countrywillexperiencealowerunemploymentrate.

ANSWER:

c.country’sconsumptionpossibilitiesfrontiercanbeoutsideitsproductionpossibilitiesfrontier.

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6.Acountry’sconsumptionpossibilitiesfrontiercanbeoutsideitsproductionpossibilitiesfrontierif

a.additionalresourcesbecomeavailable.

b.thereisanincreaseintheleveloftechnology.

c.thecountryengagesintrade.

d.Alloftheabovearecorrect.

e.Bothaandbarecorrect.

ANSWER:

c.thecountryengagesintrade.

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7.Aproductionpossibilitiesfrontierwillbelinearandnotbowedoutif

a.notradeoffsexist.

b.thetradeoffbetweenthetwogoodsisalwaysataconstantrate.

c.unemploymentiszero.

d.resourcesareallocatedefficiently.

ANSWER:

b.thetradeoffbetweenthetwogoodsisalwaysataconstantrate.

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8.Thedifferencebetweenproductionpossibilitiesfrontiersthatarebowedoutandthosethatarelinearisthat

a.bowedoutproductionpossibilitiesfrontiersillustratetradeoffswherelinearproductionpossibilitiesfrontiersdonot.

b.bowedoutproductionpossibilitiesfrontiersshowincreasingopportunitycostwherelinearonesshowconstantopportunitycost.

c.bowedoutproductionpossibilitiesfrontiersaretheresultofperfectlyshiftableresourceswherelinearproductionpossibilitiesfrontiersarenot.

d.linearproductionpossibilitiesfrontiersillustraterealworldconditionsmorethanbowedoutproductionpossibilitiesfrontiers.

ANSWER:

b.bowedoutproductionpossibilitiesfrontiersshowincreasingopportunitycostwherelinearonesshowconstantopportunitycost.

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9.WhichofthefollowingisNOTcorrect?

a.Tradeallowsforspecialization.

b.Tradeisgoodfornations.

c.Tradeisbasedonabsoluteadvantage.

d.Tradeallowsindividualstoconsumeoutsideoftheirindividualproductionpossibilitiescurve.

ANSWER:

c.Tradeisbasedonabsoluteadvantage.

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10.IflaborinMexicoislessproductivethanlaborintheUnitedStatesinallareasofproduction,

a.neithernationcanbenefitfromtrade.

b.MexicocanbenefitfromtradebuttheUnitedStatescannot.

c.Mexicowillnothaveacomparativeadvantageinanygood.

d.bothnationscanbenefitfromtrade.

ANSWER:

d.bothnationscanbenefitfromtrade.

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LaborHoursNeededtoMake1Poundof:

Poundsproducedin40hours:

Meat

Potatoes

Meat

Potatoes

Farmer

8

2

5

20

Rancher

4

5

10

8

11.Accordingtothetable,theopportunitycostof1poundofmeatforthefarmeris

a.1/4houroflabor.

b.4hoursoflabor.

c.4poundsofpotatoes.

d.1/4poundofpotatoes.

ANSWER:

c.4poundsofpotatoes.

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12.Accordingtothetable,theopportunitycostof1poundofmeatfortherancheris

a.4hoursoflabor.

b.5hoursoflabor.

c.5/4poundsofpotatoes.

d.4/5poundofpotatoes.

ANSWER:

d.4/5poundofpotatoes.

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13.Accordingtothetable,theopportunitycostof1poundofpotatoesforthefarmeris

a.8hoursoflabor.

b.2hoursoflabor.

c.4poundsofmeat.

d.1/4poundofmeat.

ANSWER:

d.1/4poundofmeat.

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14.Accordingtothetable,theopportunitycostof1poundofpotatoesfortherancheris

a.4hoursoflabor.

b.5hoursoflabor.

c.5/4poundsofmeat.

d.4/5poundofmeat.

ANSWER:

c.5/4poundsofmeat.

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15.Accordingtothetable,theFarmerhasanabsoluteadvantagein

a.meat,andtheRancherhasanabsoluteadvantageinpotatoes.

b.potatoes,andtheRancherhasanabsoluteadvantageinmeat.

c.meat,andtheRancherhasanabsoluteadvantageinmeat.

d.neithergood,andtheRancherhasanabsoluteadvantageinbothgoods.

ANSWER:

b.potatoes,andtheRancherhasanabsoluteadvantageinmeat.

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16.Accordingtothetable,theRancherhasanabsoluteadvantagein

a.bothgoods,andtheFarmerhasacomparativeadvantageinmeat.

b.meat,andtheFarmerhasacomparativeadvantageinpotatoes.

c.meat,andtheFarmerhasacomparativeadvantageinneithergood.

d.bothgoods,andtheFarmerhasacomparativeadvantageinpotatoes.

ANSWER:

b.meat,andtheFarmerhasacomparativeadvantageinpotatoes.

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17.Accordingtothetable,theFarmerhasanabsoluteadvantagein

a.potatoes,andtheRancherhasacomparativeadvantageinmeat.

b.meat,andtheRancherhasacomparativeadvantageinpotatoes.

c.neithergood,andtheRancherhasacomparativeadvantageinpotatoes.

d.neithergood,andtheRancherhasacomparativeadvantageinmeat.

ANSWER:

a.potatoes,andtheRancherhasacomparativeadvantageinmeat.

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18.Accordingtothetable,theRancherhasacomparativeadvantagein

a.neithergood,andtheFarmerhasacomparativeadvantageinbothgoods.

b.bothgoods,andtheFarmerhasacomparativeadvantageinneithergood.

c.meat,andtheFarmerhasacomparativeadvantageinpotatoes.

d.potatoes,andtheFarmerhasacomparativeadvantageinmeat.

ANSWER:

c.meat,andtheFarmerhasacomparativeadvantageinpotatoes.

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19.Accordingtothetable,theFarmerandRancherbothcouldbenefitbytheFarmerspecializingin

a.meatandtheRancherspecializinginpotatoes.

b.potatoesandtheRancherspecializinginmeat.

c.neithergoodandtheRancherspecializinginbothgoods.

d.Theycannotbenefitbyspecializationandtrade.

ANSWER:

b.potatoesandtheRancherspecializinginmeat.

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20.Accordingtothegraph,ifPauldivideshistimeequallybetweencornandwheat,hewillbeabletoproduce

a.2bushelsofwheatand2bushelsofcorn.

b.3bushelsofwheatand3bushelsofcorn.

c.4bushelsofwheatand5bushelsofcorn.

d.4bushelsofwheatand6bushelsofcorn.

ANSWER:

c.4bushelsofwheatand5bushelsofcorn.

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21.Accordingtothegraph,theopportunitycostof1bushelofwheatforCliffis

a.1/3bushelofcorn.

b.2/3bushelofcorn.

c.1bushelofcorn.

d.3/2bushelsofcorn.

ANSWER:

b.2/3bushelofcorn.

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22.Accordingtothegraph,assumethatbothPaulandCliffdividetheirtimeequallybetweentheproductionofcornandwheat,andtheydonottrade.Iftheyweretheonlyproducersofcornandwheat,thentotalproductionofwheatandcornwouldbe

a.8bushelsofwheatand7bushelsofcorn.

b.7bushelsofwheatand6bushelsofcorn.

c.6bushelsofwheatand8bushelsofcorn.

d.7bushelsofwheatand7bushelsofcorn.

ANSWER:

d.7bushelsofwheatand7bushelsofcorn.

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23.Accordingtothegraph,assumethatCliffandPaulwerebothproducingwheatandcorn,andeachweredividingtheirtimeequallybetweenthetwo.Thentheydecidetospecializeintheproducttheyhaveacomparativeadvantagein.Asaresult,totalproductionofcornwould

a.increaseby1bushel.

b.increaseby3bushels.

c.increaseby5bushels.

d.decreaseby2bushels.

ANSWER:

b.increaseby3bushels.

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24.Accordingtothegraph,assumethatCliffandPaulwerebothproducingwheatandcorn,andeachweredividingtheirtimeequallybetweenthetwo.Thentheydecidetospecializeintheproducttheyhaveacomparativeadvantageinandtrade3bushelsofwheatfor3bushelsofcorn.Cliffwouldnowbeabletoconsume.

a.4bushelsofwheatand3bushelsofcorn.

b.3bushelsofwheat