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

If a country is producing at a point inside its PPC, what does this indicate?

Accepted Answer

The country is not using all its resources efficiently. $$ $$

Question 3

Suppose Olivia can produce 16 websites or 8 programs, and you can produce 8 websites or 16 programs. What is Olivia’s opportunity cost of producing one website?

Accepted Answer

$$ \frac{1}{2} $$ program

Question 4

Which of the following statements about comparative advantage is correct?

Accepted Answer

Comparative advantage is determined by who has the lowest opportunity cost in producing a good. $$ $$

Question 5

If the opportunity cost of producing 1 banana in California is 5 apricots, and in Florida it is $$ \frac{1}{8} $$ apricot, who should specialize in producing bananas?

Accepted Answer

Florida

Question 6

Which of the following is a possible result of free trade between two countries?

Accepted Answer

There are both winners and losers, but the overall gains can compensate the losses. $$ $$

Question 7

If Denmark’s domestic price for tennis shoes is higher than the world price, what will happen under free trade?

Accepted Answer

Denmark will import tennis shoes, benefiting consumers but harming domestic producers. $$ $$

Question 8

What is the effect of a tariff on an imported good?

Accepted Answer

It raises the market price of the imported good, reducing consumer surplus and increasing producer surplus and government revenue. $$ $$

Question 9

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

Accepted Answer

Free trade increases the overall efficiency and welfare of all countries. $$ $$

Question 10

Suppose the opportunity cost for you to produce one website is 2 programs, and for Olivia it is 0.5 programs. Who has the comparative advantage in producing websites?

Accepted Answer

Olivia

Question 11

If the terms of trade for 1 program is 1 website, and your opportunity cost of producing 1 program is 1.5 websites, should you accept this trade?

Accepted Answer

No, because the terms of trade are less favorable than your opportunity cost. $$ $$

Question 12

Which of the following would shift a country’s PPC outward?

Accepted Answer

An improvement in technology $$ $$

Question 13

If a tariff creates deadweight loss, what does this mean?

Accepted Answer

Some potential gains from trade are lost and not captured by any group. $$ $$

Question 14

Which of the following best describes absolute advantage?

Accepted Answer

The ability of an economic agent to produce more output than another agent with the same resources. $$ $$

Question 15

If the world price of a good is below the domestic price, what happens to consumer and producer surplus after opening to trade?

Accepted Answer

Consumer surplus increases, producer surplus decreases. $$ $$

Question 16

A country’s domestic price for a good is higher than the world price. What is the likely result if the country opens to free trade?

Accepted Answer

The country will import the good, benefiting consumers and harming domestic producers. $$ $$

Question 17

Which of the following is an example of a real-world argument for protectionism?

Accepted Answer

Protecting a new solar panel industry from foreign competition until it becomes established. $$ $$

Question 18

Suppose 10 workers produce 1 million units of textiles per year. If New England’s textile industry reduces output by 5 million units due to free trade, how many fewer workers are employed?

Accepted Answer

$$ 50 $$ workers

Question 19

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

Accepted Answer

Equal access to all natural resources $$ $$

Question 20

If the government imposes a tariff on imported goods, which of the following groups is most likely to lose?

Accepted Answer

Domestic consumers $$ $$

Chapter 8: Trade – Microeconomics Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards