Comparative Advantage

Suppose that in one week Sam can knit 5 sweaters or make 4 blankets and Rob can knit 10 sweaters or make 6 blankets. Which of the following is true?

• Sam has an absolute advantage in making blankets
• Sam has neither a comparative nor an absolute advantage in knitting sweaters or making blankets
• Sam has a comparative advantage in making blankets
• Sam has a comparative advantage in knitting sweaters

The diagram shows the production possibilities curve for Country Y. Which of the following statements is true?

• If Country Y is producing at point C, it is using all its resources efficiently
• The opportunity cost of producing more machines is constant
• Country Y cannot produce at point E
• The most efficient point of production is point D

Which of the following constitute the fundamental questions every economic system must answer?

• I, III, V only
• I, II, and IV only
• I, II, and V only
• II, IV, and V only

Labor, human capital, entrepreneurship, natural resources, and capital are all examples of which of the following?

• Outputs
• Substitutes in Production
• Absolute Advantage
• Factors of Production

The simplified production possibilities curves for country A and B are shown. Which one of the following statements is correct?

• Country A has the comparative advantage in both goods
• Country A has the comparative advantage in chairs & Country B has the comparative advantage in shirts
• Country B has the absolute advantage in shirts only
• Country A has the comparative advantage in shirts & Country B has the comparative advantage in chairs

Improvements in technology for producing all goods must result in:

• An inward shift in the production possibilities curve 
• A flatter production possibilities curve 
• An outward shift in the production possibilities curve 
• A steeper production possibilities curve 

Which of the following is true in a capitalist economy?

• The factors of production are collectively owned. 
• The prices of goods and services are usually determined by the government. 
• Prices serve as incentives for factors of production to move to the markets where they are most valued. 
• The prices of goods and services are set so that an equitable distribution of private property is achieved. 

If nations specialize according to their comparative advantage and engage in trade with each other, each nation can:

• Consume outside its production possibilities curve 
• Produce outside its production possibilities curve 
• Shift its production possibilities curve to the right 
• Produce more of all goods 

Two alternative production possibility frontiers for apples and wheat are shown in the figures. As more wheat is produced, how will the opportunity cost of producing wheat, as represented in Figures 1 and 2, be affected? 

• Figure 1: Decrease / Figure 2: Increase
• Figure 1: Increase / Figure 2: Decrease
• Figure 1: No Change / Figure 2: Increase
• Figure 1: No Change / Figure 2: Decrease

A country produces computers and rice. If resources are fully employed and there is technological progress only in the production of rice, the opportunity costs of producing computers and rice will change in which of the following ways? 

• Computers: Increase / Rice: Increase
• Computers: Increase / Rice: Decrease
• Computers: No Change / Rice: Decrease
• Computers: Decrease / Rice: Decrease