2-11Suppose the price of Scramª lunch meat is $4.00 per can, and the price of Ponderª bread is $2.00 per loaf. How many loaves of bread would Nancy (who likes both Scramª and Ponderª bread) be giving up if she buys a can of Scramª?
A. Incorrect. If the amount of money it takes to buy one can of Scram can be used to instead buy two loaves of bread, then that is how much bread she is giving up every time she buys a can of Scram.
B. Incorrect. If the amount of money it takes to buy one can of Scram can be used to instead buy two loaves of bread, then that is how much bread she is giving up every time she buys a can of Scram.
C. Correct. If the amount of money it takes to buy one can of Scram can be used to instead buy two loaves of bread, then that is how much bread she is giving up every time she buys a can of Scram.
D. Incorrect. If the amount of money it takes to buy one can of Scram can be used to instead buy two loaves of bread, then that is how much bread she is giving up every time she buys a can of Scram.
E. Incorrect. If the amount of money it takes to buy one can of Scram can be used to instead buy two loaves of bread, then that is how much bread she is giving up every time she buys a can of Scram.
2-12Bart can mow one lawn in an hour or do twenty dishes. Lisa can mow two lawns in an hour or do 40 dishes. These figures imply that
A. Incorrect. Bart has to give up one lawn to do twenty dishes, and so does Lisa. Thus, the cost to him of doing dishes is the same as Lisa's. He does not have a comparative advantage.
B. Incorrect. Bart has to give up twenty dishes to mow one lawn, and so does Lisa. Thus, the cost to him of mowing lawns is the same as Lisa's. He does not have a comparative advantage
C. Incorrect. Bart has an absolute disadvantage in doing dishes (he can do fewer in the same amount of time.
D.Incorrect. Bart has an absolute disadvantage in mowing lawns (he can do fewer in the same amount of time.
E. Correct.
2-13Which of the following is true?
A. Incorrect. To trade, people must place different values on the goods being traded (or have different costs of producing the goods)..
B. Incorrect. When decisions about production are made, producers need to consider the opportunity cost of producing each item.
C. Incorrect. Trade is based on cost or comparative advantage.
D. Correct.
E. Incorrect. We are better off if we obtain things at lowest cost. Often, this means having other people produce them for us.
2-14Trade
A. Incorrect. While trade benefits both parties if it is voluntary, this is not the only correct answer.
B. Incorrect. While trade is productive, in that it encourages low-cost producers to produce goods, this is not the only correct answer.
C. Incorrect. While trade facilitates specialization, this is not the only correct answer.
D. Incorrect. While trade distributes goods to those people who value them most highly, this is not the only correct answer.
E. Correct.
2-15Trade between two people will occur if
A. Incorrect. A surplus implies that some of the good is not wanted, but that is certainly not necessary for trade to occur.
B. Correct.
C. Incorrect. It is comparative or cost advantages that matter.
D. Incorrect. All that is necessary is for people to place different personal estimations on the values of the goods (or the costs of producing them).
E. Incorrect. Trade will only occur if it makes both people better off.
2-16Trade between two people
A. Correct. If both did not benefit, they would not trade.
B. Incorrect. If both parties do not benefit, they will not trade.
C. Incorrect. If both parties do not benefit, they will not trade.
D. Incorrect. If both parties do not benefit, they will not trade.
E. Incorrect. If both parties do not benefit, they will not trade.
2-17Trade can benefit both people involved in a trade if
A. Incorrect. While it is true that trade will benefit both parties if the traders differ in their personal valuations of the items being traded, this is not the only correct answer.
B. Incorrect. While it is true that trade will benefit both parties if the traders differ in terms of the costs they each would have to bear in order to produce the items being traded, this is not the only correct answer.
C. Incorrect. While it is true that trade will benefit both parties if trade is based on comparative rather than absolute advantage, this is not the only correct answer.
D. Correct.
E. Incorrect.
2-18Trade based on comparative advantage assures that
A. Incorrect. In fact, even the least productive among us will benefit if trade is based on comparative advantage, because it extends his possibilities for consumption.
B. Incorrect. In fact, trade increases the wealth of all of us. Some people will always have more than others (if they are more capable), whether we have trade or not.
C. Incorrect. It is the cost of each item in terms of other things which cannot be produced that matters, not the amount of time needed to produce it.
D. Correct.
E. Incorrect. If we are talking about trade (rather than fraud) every trader comes out ahead and is thus a "winner."
2-19 When Bob buys a VCR from the SONYª Co. for $300
A. Incorrect. Bob values the VCR more than the $300, otherwise he could have just kept the $300.
B. Incorrect. Bob values the money less than the SONYª Co. does. Bob wants the VCR more than the $300. Sony wants the $300 more than it wants to keep the VCR.
C. Incorrect. Bob is made better off (otherwise, he wouldn't agree to the deal).
D. Correct. He must do so if he is giving up the money to get the VCR while Sony is willing to give up the VCR to get the money.
E. Incorrect. SONYª Co. must be getting something it wants more than what it is giving up (otherwise it would not trade) thus it is made better off.
2-20A middleman
A. Incorrect. The majority of trades involve some sort of middleman.
B. Incorrect. Trades are usually made easier when a middleman lowers information, transportation, or other transactions costs.
C. Incorrect. Not only do the traders (or buyers and sellers) gain from the trade, but so does the middleman. Every participant must benefit or he can choose not to trade.
D. Incorrect. Middlemen increase trade which increases production by allowing for specialization and comparative advantage.
E. Correct.