ECO 201 SI Week 4: Absolute vs Comparative Advantage, Demand

Which of the following statements about comparative advantage is true?

•  A country with a comparative advantage should produce the good that it can make the most of

• Comparative advantage occurs when a country has a lower opportunity cost in the production of a good

• Comparative advantage is the same as absolute advantage

• A country with a comparative advantage will always produce more of a good than other countries

Suppose Country X can produce more rice and more corn than Country Y. Trade between them could still be beneficial because

• Country X has the absolute advantage in both

• Country Y has higher wages

• Each country can benefit by specializing according to comparative advantage

• Both countries produce the same opportunity costs

A factory can produce either 50 cars or 100 motorcycles per year. What is the opportunity cost of producing 1 motorcycle?

• 0.5 cars

• 1 car

• 2 cars

• 50 cars

A factory can produce either 50 cars or 100 motorcycles per year. What is the opportunity cost of producing 1 car?

• 0.5 motorcycles

• 1 motorcycle

• 2 motorcycles

• 50 motorcycles

Tomer and Charlotte have the same resources and time. Tomer can either write 100 lines of code or process 20 reports, and Charlotte can either write 120 lines of code or process 20 reports.

Who has an absolute advantage in each thing?

• 1. Tomer has an absolute advantage in both goods

• Charlotte has an absolute advantage in writing lines of code; nobody has an absolute advantage in processing reports

• Charlotte has an absolute advantage in writing code and Tomer has an absolute advantage in processing reports

• Charlotte has an absolute advantage in both goods

If Country A can produce 10 units of wheat or 5 units of corn, and Country B can produce 8 units of wheat or 4 units of corn, which country has the absolute advantage in wheat production?

• Country A

• Country B

• Both countries

• Neither country

Country A can produce 10 units of cloth or 5 units of shoes, while Country B can produce 6 units of cloth or 4 units of shoes. Based on the principle of comparative advantage, which country has the comparative advantage in producing cloth?

• Country A

• Country B

• Neither, as both countries are equally efficient at producing cloth

• Both countries can produce cloth efficiently, so it doesn't matter

The graph above shows the production possibilities curve for Factory X and Factory Y. If Factory X uses the same amount of resources to produce skateboards and bikes as Factory Y uses, which of the following is true?

• Factory X has an absolute advantage in producing bikes.

• Factory X has an absolute advantage in producing skateboards.

• Factory X has a comparative advantage in producing skateboards.

• Factory Y has a comparative advantage in producing skateboards.

Country A can produce 12 units of wheat or 8 units of butter, and Country B can produce 16 units of wheat or 8 units of butter. If both countries engage in trade based on comparative advantage, what should each country specialize in?

• Country A should produce butter, and Country B should produce wheat

• Country A should produce wheat, and Country B should produce butter

• Country A should produce both wheat and butter

• Both countries should produce wheat

According to the law of demand...

• When price rises, demand rises

• When price falls, quantity demanded rises

• Supply always equals demand

• Demand never changes