Principles of Economic Interaction

Which of the following is a principle concerning how people interact?

• Markets are usually a good way to organize economic activity.

• Rational people think at the margin.

• People respond to incentives.

• All of the above are correct.

Which is the most accurate statement about trade?

• Trade can make every nation better off.

• Trade makes some nations better off and others worse off.

• Trading for a good can make a nation better off only if the nation cannot produce that good itself.

• Trade helps rich nations and hurts poor nations.

The principle that "trade can make everyone better off" applies to interactions and trade between

• families.

• states within the United States.

• nations.

• All of the above are correct.

The principle that trade can make everyone better off applies to

• individuals.

• families.

• countries.

• All of the above

Which of the following statements about trade is false?

• Trade increases competition.

• With trade, one country wins and one country loses.

• Bulgaria can benefit, potentially, from trade with any other country.

• Trade allows people to buy a greater variety of goods and services at lower cost.

Trade between the United States and Guatemala

• benefits both the United States and Guatemala.

• is a losing proposition for the United States because Guatemalan labor is less expensive than U.S. labor.

• is a losing proposition for Guatemala because capital is much more abundant in the U.S. than in Guatemala.

• is a losing proposition for Guatemala because U.S. workers are more productive than Guatemalan workers.

England can benefit from trade

• only with nations that can produce goods England cannot produce.

• only with less developed nations.

• only with nations outside of Europe.

• with any nation.

If Switzerland chooses to engage in trade, it

• will only benefit if it trades with countries that produce goods Switzerland cannot produce.

• cannot benefit if it trades with less developed countries.

• should first attempt to produce the good itself.

• can benefit by trading with any other country.

If the United States decides to trade with Yemen, we know that

• Yemen will benefit, but trade with a less developed country could not benefit the United States.

• it will not benefit Yemen because workers in the United States are more productive.

• Yemen and the United States can both benefit.

• it will not benefit either country because their cultural differences are too vast.

Dee is an accomplished actress and a homeowner who pays a landscaper to maintain her lawn rather than do it herself. Dee has determined that she can earn more in the hour it would take her to work on her lawn than she must pay her landscaper. This scenario is an example of which principle of economics?

• Trade can make everyone better off.

• Markets are usually a good way to organize economic activity.

• Governments can sometimes improve market outcomes.

• Prices rise when the government prints too much money.