Question 1

Suppose a country can produce either 20 units of wheat or 10 units of cars using all its resources. What is the opportunity cost of producing 1 car in terms of wheat?

Accepted Answer

$$2$$ units of wheat$

Question 2

Which of the following best describes the concept of comparative advantage?

Accepted Answer

The ability to produce a good at a lower opportunity cost than another agent

Question 3

If Denmark’s domestic price for tennis shoes is $$50 and the world price is 75$$, what will happen if Denmark opens to free trade?

Accepted Answer

Denmark will export tennis shoes

Question 4

A straight-line production possibilities curve (PPC) implies which of the following?

Accepted Answer

Constant opportunity cost

Question 5

If California can produce 5 apricots for every banana, and Florida can produce 8 bananas for every apricot, who should specialize in producing bananas?

Accepted Answer

Florida

Question 6

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

Accepted Answer

Increasing consumer surplus

Question 7

Suppose the opportunity cost for Olivia to produce 1 website is $$0.5$$ computer programs, and for you it is $$2$$ computer programs. Who has the comparative advantage in producing websites?

Accepted Answer

Olivia

Question 8

If a tariff is imposed on imported goods, which of the following is a likely result?

Accepted Answer

Government revenue increases

Question 9

Which of the following shifts the production possibilities curve (PPC) outward?

Accepted Answer

Improvement in technology

Question 10

If the world price of a good is below the domestic price, what happens when a country opens to free trade?

Accepted Answer

The country becomes an importer

Question 11

Which area on a supply and demand graph represents the net gain to a country from exporting a good at a higher world price?

Accepted Answer

Area C

Question 12

If a country imposes a tariff, which areas on the supply and demand graph represent deadweight loss?

Accepted Answer

Areas G and J

Question 13

Which of the following best describes protectionism?

Accepted Answer

The belief that governments should restrict trade to protect domestic industries

Question 14

Suppose you can produce 16 programs or 8 websites, and Olivia can produce 8 programs or 16 websites. What is your opportunity cost of producing 1 website?

Accepted Answer

$$2$$ programs$

Question 15

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

Accepted Answer

No, because you lose

Question 16

Which of the following is a real-world example of an argument for restricting free trade?

Accepted Answer

Protecting a new solar panel industry from foreign competition

Question 17

If a country moves from no trade to free trade and imports a good, what happens to producer surplus and consumer surplus?

Accepted Answer

Producer surplus decreases, consumer surplus increases

Question 18

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

Accepted Answer

Identical resource endowments

Question 19

If 10 workers produce 1 million units of textiles per year, and domestic production falls from 15 million to 5 million units after opening to trade, how many jobs are lost?

Accepted Answer

$$100$$ jobs$

Question 20

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

Accepted Answer

A country can have the absolute advantage in both goods but not the comparative advantage in both

Microeconomics Chapter 8: Trade – Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards