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2-1 If each person sells goods for which she has the greatest comparative advantage in production, and buys those goods in which she has the least comparative advantage (or a comparative disadvantage), then
A. total output available to each person can be expanded
by trade and specialization.
B. total output might be expanded, but only if some
individuals are net "losers."
C. buyers of goods will gain at the expense of sellers.
D. sellers of goods will gain at the expense of buyers.
E. total output will increase if and only if persons
with a comparative advantage in the production of a good also have an absolute
advantage in its production.
A. will only occur if the two traders are in complete
agreement as to the value (or cost of obtaining) all of the goods being exchanged.
B. must harm one of the traders, if it benefits the
other.
C. will prevent specialization from occurring,
D. is not productive in any sense, nor does it lead
to greater production.
E. promotes both productive and allocative (distribution)
efficiency.
A. are the costs associated with the action of trading,
and include information costs.
B. can be reduced by gathering information about
possible alternative exchanges.
C. cannot be reduced by consulting people who specialize
in providing information about possible alternative exchanges.
D. cannot be reduced by using consumer cooperatives
or supermarkets.
E. cannot be reduced at all.
2-4 If the people of Italia all concentrate on producing only food, they could produce 8 tons a year of food. If the people of Italia concentrate on producing only clothing, they can produce 16 tons a year of clothing. On the other hand, the people of Slavia could produce 10 tons of food if they concentrated exclusively on food production, or they instead could produce 30 tons of clothing if they concentrated on clothing production. Which statement is true?
A. Italia has a comparative advantage in producing
neither food nor clothing.
B. Slavia has a comparative advantage in producing
clothing.
C. Slavia has a comparative advantage in producing
both food and clothing.
D. Trade could benefit Italia, but not Slavia.
E. Trade could benefit Slavia, but only if it harmed
Italia.
2-5 An economy which fails to realize all of its potential gains from specialization (division of labor) is
A. achieving productive efficiency.
B. operating outside its production possibilities
curve.
C. operating on its production possibilities curve,
and thus need not be concerned with comparative advantage.
D. operating on its production possibilities curve
in an inefficient manner.
E. operating inside its production possibilities
curve.
2-6 Which of the following is the clearest example of a transaction cost?
A. The price of a movie ticket.
B. The price of food eaten before the movie.
C. Time spent watching the movie.
D. Time spent in line to buy the movie ticket.
E. all of the above.
2-7 Calvin and Hobbes are stranded in an alternative universe. They can produce and consume two goods, "X" and "Y". Calvin's production possibilities are such that he can produce 2X or 2Y per day. Hobbes can produce 6X or 3Y per day. Which of the following will maximize the consumption alternatives available for Calvin and Hobbes?
A. Calvin should specialize in Y and Hobbes in X,
but no trade should be allowed.
B. Both individuals should strive for self-sufficiency,
since this will maximize output.
C. Both individuals will have to be self-sufficient,
since Calvin can offer nothing to Hobbes at a lower cost than Hobbes can obtain
it himself.
D. Hobbes should specialize in X and Calvin in Y,
and trade can occur.
E. Calvin should specialize in X and Hobbes in Y,
and trade can occur.
2-8 For a while, John rented rooms in a duplex that Jane owned. During that time, each of them did their own dishes and vacuuming. Now, they are married and live together in the duplex. Jane does the vacuuming, while John does the dishes. They seem to spend less time doing these chores than when they each did both jobs. This is evidence of
A. choices that are inconsistent with economizing
behavior.
B. gains from technology.
C. gains from self-sufficiency.
D. the law of comparative advantage.
E. absolute advantage.
2-9 Which of the following best describes the implications of the law of comparative advantage?
A. Total output might be expanded by specialization
and trade, but some individuals will end up worse off than if the specialization
and trade had not occurred; some people will be "losers".
B. Buyers of goods gain at the expense of sellers
about half the time.
C. Sellers of goods gain at the expense of buyers
about half the time.
D. All of the above.
E. None of the above.
2-10 Bart trades his tuna and alfalfa sprout sandwich away to Lisa for a Butterfinger Bar. Since they both agree to trade voluntarily,
A. Lisa and Bart agree that a Butterfinger Bar is
about equal in value to a tuna sandwich.
B. Lisa values Butterfinger Bars more highly than
Bart does.
C. at the time of the trade, each feels that he
or she is benefiting from the trade.
D. Bart probably thinks that a tuna sandwich is
more valuable than a Butterfinger, because it is more nutritious.
E. Bart gets to do Butterfinger commercials, while
Lisa does tuna sandwich commercials.
2-11 Suppose 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. 1/2
B. 1
C. 2
D. 3
E. none, because she likes both goods
2-12 Bart 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. Bart has a comparative advantage in doing dishes.
B. Bart has a comparative advantage in mowing lawns.
C. Bart has an absolute advantage in doing dishes.
D. Bart has an absolute advantage in mowing lawns.
E. None of the above.
2-13 Which of the following is true?
A. Traders must agree as to the values of the items
being traded.
B. Cost is irrelevant when decisions about production
are made.
C. Trade is based on absolute rather than comparative
advantage.
D. Trade can actually result in more goods being
produced than would otherwise be made.
E. We would all be better off if we produced items
for our own consumption rather than buying them from others, which is always
more costly.
A. benefits both parties if it is voluntary.
B. is productive, in that it encourages low-cost
producers to produce goods.
C. facilitates specialization.
D. distributes goods to those people who value them
most highly.
E. all of the above.
2-15 Trade between two people will occur if
A. at least one of the people has a surplus of some
good.
B. the people differ in their relative preferences
for the goods they possess.
C. one of the people is absolutely better at producing
one of the goods than the other person is.
D. one of the people has more of something than
the other person does.
E. it makes one of the people worse off without
making the other person better off.
A. always benefits both parties.
B. sometimes benefits both parties.
C. usually benefits one person at the expense of
another.
D. usually helps the richer of the two and hurts
the poorer of the two.
E. B through D are all correct.
2-17 Trade can benefit both people involved in a trade if
A. the traders differ in their personal valuations
of the items being traded.
B. the traders differ in terms of the costs they
each would have to bear in order to produce the items being traded.
C. trade is based on comparative rather than absolute
advantage.
D. A, B, and C are true.
E. you believe in fantasies, rather than accepting
that every trade has a victim and victor.
2-18 Trade based on comparative advantage assures that
A. only the strongest survive.
B. some people are rich and others are poor.
C. each item is produced using the least amount
of time needed to produce it.
D. each item is produced at as low a cost possible
in terms of other things given up.
E. every trade has a winner and a loser.
2-19 When Bob buys a VCR from the SONYª Co. for $300
A. Bob values the $300 more than he values the VCR.
B. Bob values the money more than the SONYª Co.
does.
C. Bob is made worse off.
D. Bob values the VCR more in money terms than the
SONYª Co. does.
E. the SONYª Co. is made worse off.
A. is usually unnecessary for most trades, and thus
a rarity.
B. is a hindrance to trade.
C. changes the nature of trade, so that both parties
no longer benefit from the trade.
D. produces nothing, and thus does not promote efficiency
of any kind.
E. lowers transactions costs and thus facilitates
trade.
2-21 The wages of house painters have increased about as rapidly as those of other workers, even though the productivity of other workers has increased, while that of house painters has not. Perhaps the best explanation for this is
A. that productivity has nothing to do with wages.
B. that the opportunity cost of being a house painter
has risen as the wages of other workers have risen.
C. that specialization does not work.
D. that people overpay house painters.
E. there are more painters than ever before.
2-22 Which statement is false?
A. It would usually be economical for a lawyer to
do her own typing if she could type better than her secretary.
B. An avid football fan would probably find the
opportunity cost of going for a drive during the Super Bowl game quite high.
C. The United States, which has much land which
is good for growing grain, but very little land which is good for growing sugar
cane, can gain from exporting wheat to other countries and buying sugar from
them.
D. All economies face scarcity.
E. The principle of comparative advantage implies
that individuals and nations specialize in production of those things for which
they are the lower-cost producers.
A. are only for the rich.
B. discourage the flow of resources into their highest-valued
uses.
C. mean that an owner of property can do whatever
he or she wants with it.
D. provide owners with incentives to conserve and/or
use their resources thoughtfully.
E. make it costless for a resource owner to leave
a resource unused.
2-24 Swashbuckler Barbieª and galley slave Ken are stranded on Barbie'sª Deserted Fashion Island¨.Both have supplies of (dolphin-safe) canned tuna fish and coconuts. Ken places the same value on two cans of fish as he does on one coconut, while Barbieª places the same value on one can of fish as she does on two coconuts. What can you say?
A. They will not trade because they cannot agree
how much a coconut is worth.
B. Barbieª will trade away fish in exchange for
coconuts.
C. Ken will trade away fish in exchange for coconuts.
D. Ken will trade away coconuts to get fish.
E. Both B. and D. are correct.
2-25 Efficiency in production and distribution of goods requires that
A. there is no way to make more of any good without
also making less of some other good.
B. there is no way to distribute goods so as to
make one person better off without also making some other person worse off.
C. each good is being produced in a way that minimizes
the opportunity cost of producing it.
D. goods are produced on the basis of comparative
advantage.
E. all of the above
2-26 Efficiency in production means that
A. there is no scarcity .
B. the only way to get more of a good produced is
to use more resources.
C. to make more of one good, society must sacrifice
some of another good, or use more resources.
D. there exists a way to produce more of one good
without giving up some of another good.
E. no trades exist that would make one person better
off without making another person worse off.
2-27 Prohibiting a trade between two people
A. may promote allocative efficiency.
B. probably will inhibit productive efficiency.
C. might be necessary if resources are to be put
to their most highly-valued uses.
D. will have no effect on other persons.
E. is bad for everybody.
2-28 Gilligan can produce 75 coconuts or 50 fish with in one week (working very hard). The Skipper can produce 125 coconuts or 100 fish in a week (also working very hard). If they meet on Gilligan's Island, is there a potential for trade between them?
A. Yes, Skipper will specialize in coconuts, and
Gilligan will specialize in fish.
B. Yes, Skipper will specialize in fish, and Gilligan
will specialize in coconuts.
C. Yes, Skipper will specialize in both coconuts
and fish.
D. Yes, Skipper and Gilligan will both specialize
in fish.
E. No, since Skipper is better at producing both
goods, no trade (or specialization) will occur.
2-29 Gilligan can produce 75 coconuts or 50 fish with in one week (working very hard). The Skipper can produce 125 coconuts or 100 fish in a week (also working very hard). If they meet on Gilligan's Island, for which good(s) does Gilligan have a comparative advantage?
A. fish
B. coconuts
C. both
D. neither
E. We cannot tell without more information.
2-30 Gilligan can produce 75 coconuts or 50 fish with in one week (working very hard). The Skipper can produce 125 coconuts or 100 fish in a week (also working very hard). If they meet on Gilligan's Island, for which good(s) does Gilligan have an absolute advantage?
A. fish
B. coconuts
C. both
D. neither
E. We cannot tell without more information.
2-31 Gilligan can produce 75 coconuts or 50 fish with in one week (working very hard). The Skipper can produce 125 coconuts or 100 fish in a week (also working very hard). If they meet on Gilligan's Island, for which good(s) does Skipper have a comparative advantage?
A. fish
B. coconuts
C. both
D. neither
E. We cannot tell without more information.
2-32 Gilligan can produce 75 coconuts or 50 fish with in one week (working very hard). The Skipper can produce 125 coconuts or 100 fish in a week (also working very hard). If they meet on Gilligan's Island, for which good(s) does Skipper have an absolute advantage?
A. fish
B. coconuts
C. both
D. neither
E. We cannot tell without more information.
2-33 Miss Tweeter buys hi-fi speakers from an electronics store for $1500. Mr. Woofer buys the same speakers directly from the manufacturer for $1250. This implies that
A. Miss Tweeter is being cheated.
B. retail stores serve no purpose.
C. Miss Tweeter is not economizing.
D. Miss Tweeter values the services of middlemen
more than Mr. Woofer does.
E. Using middlemen is always more costly.
2-34 If people are allowed to trade freely, and trade between two people does not harm anybody else, people will trade until the point is reached at which
A. there is no way to make more of any good without
also making less of some other good.
B. there is no way to distribute goods so as to
make one person better off without also making some other person worse off.
C. each good is being produced in a way that minimizes
the opportunity cost of producing it.
D. goods are produced on the basis of comparative
advantage.
E. all of the above.
2-35 If the price of Pizza Hut pizza is $12.00 and the price of Swensen's Ice Cream is $2.00, a person should adjust his or her consumption of ice cream and pizza until
A. six pizzas are worth the same to him (or her)
as one ice cream.
B. six ice creams are worth the same to him (or
her) as one pizza.
C. comparative advantage is reached in the eating
of ice cream and pizza.
D. he or she is eating only ice cream
E. he or she is eating only pizza
2-36 Table 2-1 (click here to open in new window) suggests that
A. the U.S. should sell both beef and autos to Japan.
B. Japan should sell both beef and autos to the
U.S.
C. Japan should sell beef to the U.S.
D. Japan should sell autos to the U.S.
E. the U.S. should never forget Pearl Harbor.
2-37 Table 2-1 (click here to open in new window) suggests that
A. the U.S. has an absolute advantage in producing
autos.
B. Japan has an absolute advantage in producing
autos.
C. Japan has a comparative advantage in producing
beef.
D. Japan has a comparative advantage in producing
autos.
E. Both B and D.
2-38 Which of the following is the clearest example of a middleman?
A. a plumber
B. an attorney
C. a stock broker
D. a surgeon
E. an accountant
A. lower the information costs and other costs associated
with arranging trades.
B. produce nothing of value.
C. only raise the costs of trading.
D. set the equilibrium prices of goods.
E. reduce the number of trades possible.
2-40 According to Table 2-2 (click here to open in a new window), which producer would have the greatest comparative advantage in producing narf?
A. Larry
B. Maurice
C. Pinky
D. Either Larry or Maurice, but we need more information
to say for certain.
E. Either Larry or Pinky, but we need more information
to say for certain.
2-41 According to Table 2-2 (click here to open in a new window), which producer would have the greatest comparative advantage in producing zort?
A. Larry
B. Maurice
C. Pinky
D. Either Larry or Maurice, but we need more information
to say for certain.
E. Either Larry or Pinky, but we need more information
to say for certain.
2-42 According to Table 2-2 (click here to open in a new window), which producer would have the greatest absolute advantage in producing narf?
A. Larry
B. Maurice
C. Pinky
D. Either Larry or Maurice, but we need more information
to say for certain.
E. Either Larry or Pinky, but we need more information
to say for certain.
2-43 According to Table 2-2 (click here to open in a new window), which producer would specialize in producing narf?
A. Larry
B. Maurice
C. Pinky
D. Either Larry or Maurice, but we need more information
to say for certain.
E. Either Larry or Pinky, but we need more information
to say for certain.
2-44 According to Table 2-2 (click here to open in a new window), which producer would specialize in producing zort?
A. Larry
B. Maurice
C. Pinky
D. Either Larry or Maurice, but we need more information
to say for certain.
E. Either Larry or Pinky, but we need more information
to say for certain.
2-45 According to Table 2-2 (click here to open in a new window), if the consumers in the town consumed some zort and some narf each day, what can you say about the price of zort relative to that of narf?
A. The price of zort must be the same as the price
of narf.
B. The price of zort must be at least twice as great
as the price of narf.
C. The price of zort must be less than half as large
as the price of narf.
D. The price of zort must be at least four times
as great as the price of narf.
E. The price of zort must be less than one-fourth
as large as the price of narf.
2-46 According to Table 2-2 (click here to open in a new window), which good will Pinky specialize in producing?
A. narf
B. zort
C. both
D. Either narf or zort, since he is good at producing
both.
E. Neither. Since Pinky is such a poor producer,
no one would benefit from trading with him.
2-47 According to Table 2-2 (click here to open in a new window), which good will Larry specialize in producing?
A. narf
B. zort
C. both
D. Neither. He will produce narf or zort or a mixture
of both, depending upon consumer desires.
E. Neither. Since Larry is such a poor producer,
no one would benefit from trading with him.
A. occurs if producers have some degree of comparative
advantage in producing some items.
B. leads to inefficient use of resources.
C. occurs if one producer has an absolute advantage
in production of some items.
D. raises the prices of goods.
E. occurs if all producers have absolute advantages
in producing at least one item.
2-49 Government-owned public housing is frequently run-down and poorly maintained. An economic explanation for this is that
A. the government lacks fund to keep up the quality
of the housing.
B. there is little incentive for residents in public
housing to maintain something that they do not own.
C. residents in public housing are always lazy or
poor people who won't or can't keep it up.
D. governments prefer that public housing is of
such poor quality that no one would want to live in it if they had the choice.
E. government is inherently inefficient and thus
cannot maintain the quality of any kind of land or building.
2-50 Which of the following is most likely to encourage private land owners to plant more trees?
A. An increase in the use of paper bags. paper towels
and other products made from freshly-cut trees.
B. A law requiring that consumers buy more paper
products made from recycled paper.
C. Laws requiring that people turn in all of their
recyclable paper products for recycling.
D. Increased use of artificial Christmas trees.
E. Decreased use of lumber in construction and furniture
products and increased reliance on synthetic materials such as plastic and fiberboard.
2-51 A private owner of an item of property (or resource) has a strong incentive to
A. conserve the property for the future, especially
if it is expected to increase in value.
B. use the property wisely, rather than "trashing"
it.
C. employ the property in ways which benefit others.
D. take care that the property is not used in ways
which directly harm others.
E. all of the above.