Chap 3+4

When an economist points out that you and millions of other people are interdependent, he or she is referring to the fact that we all

• rely upon government to provide us with the basic necessities of life.

• rely upon one another for the goods and services we all consume.

• have similar tastes and abilities.

• are concerned about one another's well-being.

A country's consumption possibilities frontier can be outside its production possibilities frontier if

• the country's technology is superior to the technologies of other countries.

• the citizens of the country have a greater desire to consume goods and services than do the citizens of other countries.

• the country engages in trade.

• All of the above are correct

If labor in Mexico is less productive than labor in the United States in all areas of production,

• neither nation can benefit from trade.

• Mexico can benefit from trade but the United States cannot.

• the United States will have a comparative advantage relative to Mexico in the production of all goods.

• both Mexico and the United States still can benefit from trade.

Specialization and trade are closely linked to

• absolute advantage.

• comparative advantage.

• gains to some traders that exactly offset losses to other traders.

• shrinkage of the economic pie.

Economists generally support

• trade restrictions.

• government management of trade.

• export subsidies.

• free international trade.

Suppose the United States has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that

• Mexico has nothing to gain from importing United States pork.

• the United States should refrain altogether from producing pork and import all of what it requires from Mexico.

• the United States should produce a moderate quantity of pork and import the remainder of what it requires from Mexico.

• the United States should produce more pork than what it requires and export some of it to Mexico.

Trade allows a country to consume outside its production possibilities frontier.

• True

• False

For a country producing two goods, the opportunity cost of one good will be the inverse of the opportunity cost of the other good.

• True

• False

It takes Russell 6 hours to produce a bushel of corn and 2 hours to wash and polish a car. It takes Wilma 6 hours to produce a bushel of corn and 1 hour to wash and polish a car. Wilma and Russell cannot gain from specialization and trade, since it takes each of them 6 hours to produce 1 bushel of corn.

• True

• False

When each person specializes in producing the good for which he or she has a comparative advantage, each person can gain from trade but total production in the economy is unchanged.

• True

• False