Question 1

According to the Law of Comparative Advantage, why should Pam (the lawyer) hire Ann (the secretary) to do secretarial work, even though Pam can do both legal and secretarial work?

Accepted Answer

Because Pam's opportunity cost of doing secretarial work is higher than Ann's.

Question 2

If Pam earns $$150 per hour doing legal work and 25 $$per hour doing secretarial work, what is Pam's opportunity cost of doing one hour of secretarial work?

Accepted Answer

$125

Question 3

Which of the following best describes Ann's comparative advantage?

Accepted Answer

Ann can do secretarial work at a lower opportunity cost than Pam.

Question 4

If Pam spends one hour doing secretarial work instead of legal work, what is the total value lost to her law practice?

Accepted Answer

$125

Question 5

Why does employing Ann full-time increase Pam's law practice earnings?

Accepted Answer

Because Pam can focus on higher-value legal work, maximizing total output.

Question 6

Suppose Ann can only do secretarial work at $25 per hour and cannot do legal work. What is Ann's opportunity cost of doing secretarial work?

Accepted Answer

$0

Question 7

If Pam does all the secretarial work herself, what is the effect on her law practice's total income?

Accepted Answer

It decreases because Pam gives up higher-value legal work.

Question 8

Which economic principle is illustrated by Pam hiring Ann for secretarial work?

Accepted Answer

Law of Comparative Advantage

Question 9

If Ann's wage increases to $50 per hour, what is Pam's opportunity cost of doing secretarial work herself?

Accepted Answer

$125

Question 10

Which of the following statements is TRUE regarding absolute and comparative advantage in this scenario?

Accepted Answer

Pam has an absolute advantage in both tasks, but Ann has a comparative advantage in secretarial work.

Comparative Advantage and Gains from International Trade

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