Comparative Advantage and Terms of Trade

The PPC shows how many airplanes and pizzas Country A and Country B can produce with a certain number of workers. Which Country should produce Pizzas?

• Country A

• Country B

• Both Country A and Country B

• Neither Country A nor Country B

• We cannot determine this

If the two countries were to specialize and trade with one another, which country would import airplanes?

• Country A

• Country B

• Neither

• Both

• We cannot determine this

Amanda can either build 6 models or prepare 4 experiments, and Pam can either build 9 models or prepare 6 experiments. Amanda and Pan have identical time and resources available.

Who has a comparative advantage in building models and who has a comparative advantage in preparing experiments?

• Both have a comparative advantage in both goods

• Pam has a comparative advantage in both building models and preparing experiments

• Neither has a comparative advantage in producing either good

• Amanda has a comparative advantage in building models and Pam has a comparative advantage in preparing experiments

• Pam has a comparative advantage in building models; both have a comparative advantage in preparing experiments

Martha and Dave like to make identical tacos and cakes. The time it makes Martha and Dave to make tacos and cakes is given in the table provided. Which person has an absolute advantage in the production of tacos, and which person has an absolute advantage in the production of cakes?

• Martha has an absolute advantage in tacos; Dave has an absolute advantage in cakes

• Neither Dave nor Martha has an absolute advantage at producing either good

• Dave has an absolute advantage in producing both goods

• Both Martha and Dave have an absolute advantage in producing both goods

• Martha has an absolute advantage in producing both goods

Country A and Country B are potential trading partners that can produce boats and umbrellas, as illustrated in the PPCs. Which of the following exchange prices for boats would result in gains from trade for these two countries?

• 1/4 umbrella per boat

• 1/3 umbrella per boat

• 3/5 umbrella per boat

• One umbrella per boat

• 2.5 umbrella per boat

Joya can make an apple pie in 20 minutes and she can prepare a turkey in 60 minutes. Chris needs 25 minutes to make a pie but requires 100 minutes to prepare a turkey. Based on this information, who should focus on making turkey for Thanksgiving dinner?

• Chris

• Joya

• Neither

• Both

• We cannot tell

Eric and Melanie like to build apps and coach soccer. The time it takes Eric and Melanie to build apps and plan soccer drills for their team is given in the table. Which person has a comparative advantage in the production of apps, and which person has a comparative advantage in the production of soccer drills?

• Both people have a comparative advantage in producing both goods

• Eric has a comparative advantage in building apps; nobody has a comparative advantage in planning soccer drills

• Neither person has a comparative advantage at producing either goods

• Melanie has a comparative advantage in creating soccer drills; Eric has a comparative advantage in building apps

• Melanie has a comparative advantage in building apps; Eric has a comparative advantage in creating soccer drills

Using the same amount of time and resources, Kim can write 10 articles or complete 5 worksheets and Leah can either write 3 articles or complete 9 worksheets. If Kim and Leah specialize and trade, who should specialize in each good?

• There is no opportunity for gains from trade because neither person has a comparative advantage in producing either good

• Kim should specialize in writing articles, Leah should specialize in worksheets

• There is no opportunity for gains from trade because both people have identical opportunity costs

• There is no opportunity for specialization because they both have an absolute advantage in producing one good

• Kim should specialize in worksheets, Leah should specialize in writing articles

Which of the following statements is true about specialization and trade?

• A country should specialize in  and export the good for which it has absolute advantage

• A country should specialize in and import the good for which it has comparative advantage

• A country should specialize in and import the good for which it has absolute advantage

• A country should specialize in and export the good for which it has comparative advantage

• A country should specialize in and export a good for which it has both comparative and absolute advantage

The producer that can produce the most output OR requires the least amount of inputs (resources)

• Comparative Advantage

• Trade Offs

• Absolute Advantage

• Opportunity Cost