Question 1

Suppose Country A can produce either 10 units of wheat or 5 units of clothing with its available resources, while Country B can produce either 6 units of wheat or 6 units of clothing. What is the opportunity cost of producing 1 unit of clothing in Country A?

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 country

Question 3

If the U.S. can produce 5 units of clothing or 6 units of wheat, and Mexico can produce 4 units of clothing or 3 units of wheat, which country has the absolute advantage in wheat production?

Accepted Answer

The U.S.

Question 4

A country faces the following production possibilities: 10 units of steel or 5 units of chips. What is the opportunity cost of producing 1 chip?

Accepted Answer

$2$ units of steel$

Question 5

Which of the following statements about trade is TRUE according to the principle of comparative advantage?

Accepted Answer

Trade allows countries to consume beyond their production possibilities frontiers.

Question 6

If the price of a substitute good increases, what is the likely effect on the demand for the original good?

Accepted Answer

The demand for the original good will increase.

Question 7

Which of the following is NOT a reason against full specialization in international trade?

Accepted Answer

Absolute advantage in all goods

Question 8

Suppose the opportunity cost of producing 1 unit of wheat in the U.S. is $0.83$ units of clothing, and in Mexico it is $1.33$ units of clothing. Which country should specialize in wheat production?

Accepted Answer

The U.S., because it has a lower opportunity cost

Question 9

Which of the following best explains why trade barriers such as tariffs can reduce overall economic welfare?

Accepted Answer

They raise prices for consumers and reduce consumption possibilities

Question 10

A country can produce either 20 units of good X or 10 units of good Y. What is the opportunity cost of producing 1 unit of good Y?

Accepted Answer

$2$ units of good X$

Question 11

Which economist is most closely associated with the development of the theory of comparative advantage?

Accepted Answer

David Ricardo

Question 12

If a country imposes a tariff on imported steel, which of the following is a likely consequence?

Accepted Answer

Domestic steel producers will face less competition

Question 13

Which of the following would cause a movement along the demand curve for a product, rather than a shift of the demand curve?

Accepted Answer

A change in the price of the product itself

Question 14

Country X can produce 8 units of food or 4 units of machinery. Country Y can produce 6 units of food or 6 units of machinery. Which country has a comparative advantage in machinery?

Accepted Answer

Country Y, because its opportunity cost of machinery is lower

Question 15

If the price of a complement good (e.g., peanut butter) increases, what is the likely effect on the demand for the related good (e.g., jelly)?

Accepted Answer

The demand for jelly will decrease

Question 16

Which of the following is an example of a real-world factor that can influence a country's comparative advantage?

Accepted Answer

The country's climate and natural resources

Question 17

Suppose the U.S. specializes in wheat and Mexico specializes in clothing. After trade, both countries are able to consume more of both goods than before. This outcome is possible because:

Accepted Answer

Trade allows countries to consume outside their production possibilities frontiers

Question 18

Which of the following best describes the law of demand?

Accepted Answer

As the price of a good increases, the quantity demanded decreases, ceteris paribus

Question 19

A country can produce either 15 units of chips or 10 units of steel. What is the opportunity cost of producing 1 unit of steel?

Accepted Answer

$1.5$ units of chips$

Microeconomics Study Guide: Trade, Comparative Advantage, and Demand

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