Question 1

Which of the following best describes the production possibilities curve (PPC)?

Accepted Answer

It shows the maximum production of one good for a given level of production of another good, given existing resources and technology. $$ $$

Question 2

Suppose you can produce either 16 computer programs or 8 websites in a day. What is your opportunity cost of producing 1 website?

Accepted Answer

$$2$$ computer programs

Question 3

Olivia can produce either 8 computer programs or 16 websites in a day. What is Olivia’s opportunity cost of producing 1 computer program?

Accepted Answer

$$2$$ websites

Question 4

If you have a lower opportunity cost of producing computer programs and Olivia has a lower opportunity cost of producing websites, what should each of you specialize in according to the principle of comparative advantage?

Accepted Answer

You should specialize in computer programs, and Olivia should specialize in websites.

Question 5

Which of the following statements about absolute and comparative advantage is correct?

Accepted Answer

Comparative advantage is based on lower opportunity cost, not on producing more with the same resources.

Question 6

Suppose California can produce 5 apricots or 1 banana, and Florida can produce 8 bananas or 1 apricot. Who should produce bananas?

Accepted Answer

Florida, because its opportunity cost of producing bananas is lower.

Question 7

If the world price of tennis shoes is above the domestic price in Denmark, what will happen under free trade?

Accepted Answer

Denmark will export tennis shoes.

Question 8

Which area represents the net overall gain from trade in an exporting nation, according to the surplus analysis?

Accepted Answer

Area $$C$$

Question 9

A tariff is imposed on imported textiles. Which of the following is a direct effect of this tariff?

Accepted Answer

Consumer surplus decreases, producer surplus increases, and the government gains tariff revenue.

Question 10

Which of the following is NOT a common argument against free trade?

Accepted Answer

Free trade always increases local wages and jobs.

Question 11

Suppose the opportunity cost for you to produce 1 website is $$1.5$$ programs, and for Olivia it is $$2$$ programs. If Olivia offers to trade you 1 website for 1 program, should you accept?

Accepted Answer

Yes, because you give up less than your opportunity cost for a website.

Question 12

If a country’s PPC shifts outward, which of the following could be a cause?

Accepted Answer

An improvement in technology.

Question 13

Which of the following best describes deadweight loss from a tariff?

Accepted Answer

It is the loss of total surplus that is not gained by any group after the tariff is imposed.

Question 14

If Denmark imports tennis shoes at a world price below its domestic price, who are the winners and losers?

Accepted Answer

Consumers gain, producers lose.

Question 15

Which of the following is the correct formula for calculating the opportunity cost of producing one unit of Good X in terms of Good Y?

Accepted Answer

$$	ext{Opportunity Cost of Good X} = \frac{	ext{Units of Good Y foregone}}{	ext{Units of Good X gained}}$$

Question 16

Which of the following is a real-world example of the infant industry argument against free trade?

Accepted Answer

A developing country imposes tariffs on imported solar panels to allow its own solar industry to grow.

Question 17

If 10 workers produce 1 million units of textiles per year, and free trade reduces domestic production from 15 million to 5 million units, how many fewer workers are employed?

Accepted Answer

$$100$$ workers

Question 18

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

Accepted Answer

Equal access to all natural resources.

Question 19

If the terms of trade for 1 program is between $$1.5$$ and $$2$$ websites, which of the following trades would both you and Olivia accept?

Accepted Answer

1 program for 1.8 websites

Chapter 8: Trade – Microeconomics Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards