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.
2-2 Trade
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.
2-3 Transactions costs
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 Scram™ lunch meat is $4.00 per
can, and the price of Ponder™ bread is $2.00 per loaf. How
many loaves of bread would Nancy (who likes both Scram™ and
Ponder™ bread) be giving up if she buys a can of Scram™?
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.
2-14 Trade
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.
2-16 Trade between two people
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 SONY™ Co. for $300
A. Bob values the $300 more than he values the VCR.
B. Bob values the money more than the SONY™ Co. does.
C. Bob is made worse off.
D. Bob values the VCR more in money terms than the SONY™
Co. does.
E. the SONY™ Co. is made worse off.
2-20 A middleman
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.
2-23 Property rights
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 Barbie™ and galley slave Ken are stranded
on Barbie's™ 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 Barbie™ 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. Barbie™ 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
2-34 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
Below is a table showing the annual production possibilities open
to the U.S. and Japan, if both countries work to maximum capacity
to produce either automobiles OR beef:
| Country | Automobiles | Beef |
| U.S. | 5 million | 100 million head |
| Japan | 5 million | 20 million head |
Producer |
Narf per day |
Zort per day |
| Larry | 210 | 70 |
| Maurice | 160 | 40 |
| Pinky | 50 | 25 |
2-48 Specialization
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.
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Chapter 2 Questions