8.2 The Basis for Trade: Comparative Advantage
1) The ability of an individual, firm, or country to produce a certain good at a lower opportunity cost than other producers is referred to as:
A) marginal advantage.
B) absolute advantage.
C) cardinal advantage.
D) comparative advantage.
2) In Lithasia, the opportunity cost of producing a chair is two tables and in Barylia, the opportunity cost of producing a chair is 1/2 tables. Which of the following statements is true?
A) Barylia has a comparative advantage in producing chairs.
B) Lithasia has a comparative advantage in producing chairs.
C) Barylia has a comparative advantage in producing tables.
D) Lithasia has a comparative disadvantage in producing tables.
The following figure shows the production possibilities curve of two individuals: Ryan and Tom.
3) Refer to the figure above. Which of the following statements is true?
A) Ryan has a comparative advantage in the production of Good 1, whereas Tom has a comparative advantage in the production of Good 2.
B) Ryan has a comparative advantage in the production of Good 2, whereas Tom has a comparative advantage in the production of Good 1.
C) Ryan has a comparative advantage in the production of both the goods.
D) Tom has a comparative advantage in the production of both the goods.
4) Refer to the figure above. Which of the following statements is true?
A) Ryan's opportunity cost of producing Good 1 is higher than that of Tom, whereas Tom's opportunity cost of producing Good 2 is higher than of Ryan.
B) Ryan's opportunity cost of producing Good 2 is higher than Tom's opportunity cost of producing it.
C) Ryan has a comparative disadvantage in the production of both goods.
D) Tom has a comparative disadvantage in the production of both goods.
5) Refer to the figure above. Which of the following statements is true?
A) Ryan has an absolute advantage in the production of Good 1, whereas Tom has an absolute advantage in the production of Good 2.
B) Tom has an absolute advantage in the production of Good 1, whereas Ryan has an absolute advantage in the production of Good 2.
C) Ryan has an absolute advantage in the production of both the goods.
D) Tom has an absolute advantage in the production of both the goods.
6) Refer to the figure above. Which of the following statements is true?
A) Tom has an absolute disadvantage in the production of Good 1, whereas Ryan has an absolute disadvantage in the production of Good 2.
B) Ryan has an absolute disadvantage in the production of Good 1, whereas Tom has an absolute disadvantage in the production of Good 2.
C) Tom can produce less of both goods given the same amount of resources as Ryan.
D) Ryan can produce less of both goods given the same amount of resources as Tom.
7) Which of the following statements is true?
A) When two firms have exactly the same opportunity cost of producing two goods, each firm will always have a comparative advantage in the production of both the goods.
B) When two firms have different opportunity costs of producing the same two goods, each firm will always have a comparative advantage in the production of one of the goods.
C) The firm that has a lower opportunity cost of producing a good is said to have a comparative disadvantage in the production of that good.
D) The firm that faces a lower opportunity cost in producing a good is said to have an absolute disadvantage in the production of that good.
8) Specialization occurs when:
A) each individual, firm, or country produces only a few specific goods and relies on trade for the other goods and services it needs.
B) each individual, firm, or country is self-sufficient and produces all the goods and services it needs, without relying on imports.
C) each individual, firm, or country produces only those goods for which it has a higher opportunity cost of producing than the opportunity cost in other nations.
D) each individual, firm, or country produces only those goods which are in demand in the global market and allow for high rates of profitability.
9) Which of the following statements is true?
A) When two nations specialize and trade, there is a loss of efficiency and both the nations are made worse off.
B) Trade between two nations is most beneficial when neither has a comparative advantage in the production of any goods and services.
C) Trade between nations allows each nation to specialize in the production of goods in which it has comparative advantage.
D) Trade between two nations is possible only when the opportunity costs of producing goods and services in both nations are identical.
10) A firm producing calculators and cell phones purchases new machinery that increases the productivity of producing calculators. Assuming that the number of calculators produced is measured on the horizontal axis and the number of cell phones produced is measured on the vertical axis, how will the introduction of the new machinery change the firm's production possibilities curve?
A) The production possibilities curve will shift inward.
B) The production possibilities curve will shift outward.
C) The production possibilities curve will pivot rightward about the vertical axis.
D) The production possibilities curve will pivot rightward about the horizontal axis.
