Comparative Cost Advantage and H-O Theory

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

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

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

Based on the table provided, which one of the following statements is correct?

• Japan has the absolute advantage in producing cars
• Japan has the comparative advantage in producing cars
• The United States has the absolute advantage in producing both cars and computers
• The opportunity cost of producing a car in Japan is 1/2 a computer

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

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

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 

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

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