Q: Suppose Vietnam can produce $$1$$ microchip in $$4$$ hours and $$1$$ roll of textiles in $$1$$ hour, while Korea can produce $$1$$ microchip in $$2$$ hours and $$1$$ roll of textiles in $$2$$ hours. What is the acceptable range for the price of $$1$$ microchip in terms of textiles for mutually beneficial trade?

$$1 \u003c \text{Price of 1 Microchip} \u003c 4$$ textiles

Question 1

Which of the following best explains why nations engage in trade according to the principle outlined in the study materials?

Accepted Answer

Because trade allows each nation to consume beyond its production possibilities frontier (PPF) by specializing in goods where they have a comparative advantage.

Question 2

Given the following labor requirements: United States (100 hours for 1 smartphone, 20 hours for 1 ton of coffee) and Vietnam (250 hours for 1 smartphone, 25 hours for 1 ton of coffee), what is the opportunity cost of producing 1 smartphone in the United States?

Accepted Answer

$$5$$ tons of coffee

Question 3

Which country has the comparative advantage in coffee production based on the opportunity costs provided?

Accepted Answer

Vietnam, because it sacrifices only $$0.1$$ smartphone per ton of coffee.

Question 4

If the United States and Vietnam specialize according to their comparative advantages and trade, what happens to the total world output of coffee?

Accepted Answer

It increases by $$550$$ tons compared to autarky.

Question 5

Which of the following is a necessary condition for mutually beneficial trade between two countries?

Accepted Answer

The trading price must lie strictly between the opportunity costs of the two producers.

Question 6

Suppose Vietnam can produce $$1$$ microchip in $$4$$ hours and $$1$$ roll of textiles in $$1$$ hour, while Korea can produce $$1$$ microchip in $$2$$ hours and $$1$$ roll of textiles in $$2$$ hours. What is the acceptable range for the price of $$1$$ microchip in terms of textiles for mutually beneficial trade?

Accepted Answer

$$1 \u003c 	ext{Price of 1 Microchip} \u003c 4$$ textiles

Question 7

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

Accepted Answer

A nation can have an absolute advantage in all goods, but cannot have a comparative advantage in all goods.

Question 8

If the United States specializes in smartphones and Vietnam specializes in coffee, what is the net gain in coffee for the United States after trade compared to autarky?

Accepted Answer

$$+400$$ tons

Question 9

Why does trade allow countries to consume beyond their domestic production possibilities frontier (PPF)?

Accepted Answer

Because specialization and exchange enable access to a greater variety and quantity of goods than could be produced alone.

Question 10

In the real-life application with Faker (Esports Champion) and the neighborhood gardener, why is it efficient for Faker to hire the gardener to mow his lawn?

Accepted Answer

Because Faker's opportunity cost of mowing the lawn ($$50,000,000$$ VND) is much higher than the gardener's ($$400,000$$ VND).

Question 11

Which of the following is a likely consequence of international trade according to the study materials?

Accepted Answer

Domestic consumers benefit from lower prices and greater variety, but some domestic industries may face intense competition.

Question 12

If the opportunity cost of producing $$1$$ ton of coffee in the United States is $$0.2$$ smartphones, and in Vietnam it is $$0.1$$ smartphones, which country should specialize in coffee production?

Accepted Answer

Vietnam, because it has the lower opportunity cost.

Question 13

Which of the following best describes the difference between absolute and comparative advantage?

Accepted Answer

Absolute advantage is about using fewer inputs; comparative advantage is about having a lower opportunity cost.

Question 14

If the United States and Vietnam each have $$50,000$$ labor hours, and the US splits labor equally between smartphones and coffee, how many smartphones and tons of coffee does it produce under autarky?

Accepted Answer

$$250$$ smartphones and $$1,250$$ tons of coffee

Question 15

Which of the following is NOT a reason why trade can make everyone better off, according to the study materials?

Accepted Answer

Trade is a zero-sum game where one side's gain is another's loss.

Question 16

If the acceptable price for $$1$$ smartphone in terms of coffee is between $$5$$ and $$10$$ tons, which of the following prices would NOT be mutually beneficial for both the US and Vietnam?

Accepted Answer

$$12$$ tons of coffee

Question 17

Which of the following best summarizes the key insight about comparative advantage from the study materials?

Accepted Answer

Gains from trade arise from comparative advantage, not absolute advantage.

Interdependence & the Gains from Trade: Absolute vs. Comparative Advantage, Specialization, and International Trade

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