Interdependence & The Gains from Trade

Before Frank and Ruby engage in trade, each of them

• consumes at a point inside his or her production possibilities frontier.

• consumes at a point on his or her production possibilities frontier.

• consumes at a point outside his or her production possibilities frontier.

• consumes the same amounts of meat and potatoes as the other.

After John and Tom engage in trade, each of them

• consumes at a point inside his or her production possibilities frontier.

• consumes at a point on his or her production possibilities frontier.

• consumes at a point outside his or her production possibilities frontier.

• consumes the same amounts of meat and potatoes as the other.

In an hour, Mateo can wash 2 cars or mow 1 lawn, and Sophia can wash 3 cars or mow 1 lawn. Who has the absolute advantage in car washing, and who has the absolute advantage in lawn mowing?

• Mateo in washing, Sophia in mowing

• Sophia in washing, Mateo in mowing

• Mateo in washing, neither in mowing

• Sophia in washing, neither in mowing

A nation will typically import those goods in which

• the nation has an absolute advantage.

• the nation has a comparative advantage.

• other nations have an absolute advantage.

• other nations have a comparative advantage

Suppose that in the United States, producing an aircraft takes 10,000 hours of labor, and producing a shirt takes 2 hours of labor. In China, producing an aircraft takes 40,000 hours of labor, and producing a shirt takes 4 hours of labor. What will these nations trade?

• China will export aircraft, and the United States will export shirts.

• China will export shirts and the United States will export aircraft.

• Both nations will export shirts.

• There are no gains from trade in this situation

Kayla can cook dinner in 30 minutes and wash the laundry in 20 minutes. Her roommate takes twice as long to do each task. How should the roommates allocate the work?

• Kayla should do more of the cooking based on her comparative advantage.

• Kayla should do more of the washing based on her comparative advantage.

• Kayla should do more of the washing based on her absolute advantage.

• there are no gains from trade in this situation.

If a nation has an absolute advantage in the production of a good,

• It can produce that good using fewer resources than its trading partner.

• It can produce that good at a lower opportunity cost than its trading partner.

• It can benefit by restricting imports of that good.

• It will specialize in the production of that good and export it.

If a nation has a comparative advantage in the production of a good,

• It can produce that good using fewer resources than its trading partner.

• It can produce that good at a lower opportunity cost than its trading partner.

• It can benefit by restricting imports of that good.

• It must be the only country with the ability to produce that good.

Which of the following statements about trade is true?

• Trade can benefit everyone in society because it allows people to specialize in activities in which they have an absolute advantage.

• Trade can benefit everyone in society because it allows people to specialize in activities in which they have a comparative advantage.

• Unrestricted international trade benefits every person in a country equally.

• People that are skilled at all activities cannot benefit from trade.

According to the principle of comparative advantage, countries should specialize in the production of

• every goods

• goods for which they have a lower opportunity cost of production than their trading partners.

• goods for which they use fewer resources in production than their trading partners.

• goods that they enjoy consuming.