Question 1

Suppose the production possibility frontier (PPF) for a country is bowed outward, as shown in the first image. What does this shape indicate about opportunity costs as more of one good is produced?

Accepted Answer

Opportunity costs increase as more of one good is produced.

Question 2

If China can produce 4 smartphones or 2 bushels of wheat per hour, what is the opportunity cost for China to produce 1 smartphone?

Accepted Answer

$$0.5$$ bushels of wheat

Question 3

Given the following: The United States can produce 6 smartphones or 12 bushels of wheat per hour. What is the opportunity cost for the United States to produce 1 bushel of wheat?

Accepted Answer

$$0.5$$ smartphones

Question 4

Based on the data provided, which country has the comparative advantage in producing wheat?

Accepted Answer

United States, because it has a lower opportunity cost for wheat.

Question 5

If the United States and China specialize according to their comparative advantages and trade at a rate of 1 smartphone for 1 bushel of wheat, which of the following statements is true?

Accepted Answer

Both countries can consume more of both goods than without trade.

Question 6

Suppose France can produce 24 units of cloth or 16 units of wine per hour, and Portugal can produce 4 units of cloth or 7 units of wine per hour. What is the opportunity cost for Portugal to produce 1 unit of wine?

Accepted Answer

$$0.57$$ units of cloth

Question 7

Why might we not see complete specialization in the real world, even if countries have comparative advantages?

Accepted Answer

Because increasing opportunity costs and differences in tastes prevent complete specialization.

Question 8

If the terms of trade between two countries are set at a rate worse than a country's opportunity cost, what will happen?

Accepted Answer

The country will refuse to trade because it is better off producing the good itself.

Question 9

Which of the following is NOT a source of comparative advantage?

Accepted Answer

High tariffs and quotas

Question 10

Suppose Italy can produce 4 bottles of wine or 8 wheels of cheese per hour. What is the opportunity cost for Italy to produce 1 bottle of wine?

Accepted Answer

$$2$$ wheels of cheese

Question 11

If France and Italy both specialize and trade, what is an acceptable number of wheels of cheese for Italy to trade to France in exchange for 2,000 bottles of wine, given Italy's opportunity cost of wine is 2 wheels of cheese per bottle?

Accepted Answer

Less than 4,000 wheels of cheese

Question 12

Which group is most likely to lose from international trade between China and the United States, based on the example provided?

Accepted Answer

Chinese wheat farms

Question 13

If a country is in autarky, what does this mean?

Accepted Answer

It does not trade with other countries.

Question 14

Suppose the United States and China each have 1,000 hours to spend. If China produces 4,000 smartphones and the U.S. produces 12,000 bushels of wheat, what is the total world production of both goods?

Accepted Answer

$$4,000$$ smartphones and $$12,000$$ bushels of wheat

Question 15

Which of the following best describes absolute advantage?

Accepted Answer

The ability to produce more of a good than competitors using the same amount of resources.

Question 16

If the opportunity cost of producing 1 unit of cloth in France is $$0.67$$ units of wine, and in Portugal it is $$0.57$$ units of wine, which country has the comparative advantage in cloth?

Accepted Answer

Portugal

Question 17

Suppose after trade, France increases its consumption of wine by 0 units and cloth by 0 units, while Portugal increases its consumption of wine by 0 units and cloth by 0 units. What does this indicate about the terms of trade?

Accepted Answer

The terms of trade were not mutually beneficial.

Comparative Advantage and Gains from International Trade

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