Absolute & Comparative Advantage Review Quiz

1. Which of the following statements is TRUE?

• Trade is NEVER mutually beneficial if one person has an absolute advantage.

• Trade is ONLY mutually beneficial if one person has an absolute advantage.

• Trade CAN BE mutually beneficial even if one person has an absolute advantage.

• Trade is NEVER mutually beneficial.

2. Which of the following is the best description of the law of comparative advantage?

• The law of comparative advantage states that whoever is the best at something should produce that good.

• The law of comparative advantage states that whoever has the lowest opportunity cost should produce that good.

• The law of comparative advantage states that as you get better at something, the more likely you are to take advantage of someone else.

• The law of comparative advantage states that you have a comparative advantage if you have a higher opportunity cost than someone else.

A ten-year old mows the lawn even though her parents are better at mowing lawns. This ten year old has a(n) _____________ because her opportunity cost is ___________.

• 1. Absolute advantage, lower than her parents

• 1. Absolute advantage, higher than her parents

• 1. Comparative advantage, lower than her parents

• 1. Comparative advantage, higher than her parents

1. In one year, Korea can either produce 200 cars or 1000 tons of lumber. Japan can produce 400 cars or 1200 tons of lumber.

2. What is the opportunity cost for each country to produce one car (in tons of lumber)?

   Japan:____ tons of lumber

   Korea:____ tons of lumber

   
   

• Japan 3; Korea 5

• Japan 5; Korea 3

• Japan 2; Korea 3

• Japan 10; Korea 8

1. In one year, Korea can either produce 200 cars or 1000 tons of lumber. Japan can produce 400 cars or 1200 tons of lumber.

2. Which country should produce cars?

• 1. Japan, because they have the comparative advantage in cars

• 1. Japan, because they have the comparative advantage in lumber

• 1. Korea, because they have the comparative advantage in cars

• 1. Korea, because they have the comparative advantage in lumber

True or False: The law of comparative advantage states that whoever is best at something should specialize in that product

• True

• False

Answer explanation

The law of comparative advantage states that whoever has a lower opportunity cost should specialize in that product or service