Mastering Comparative Advantage and Opportunity Cost

According to the text, what are the two goods that are mentioned in the parable for the modern economy?

Bread and cheese
Meat and potatoes (correct)
Apples and oranges
Cars and bicycles

Which of the following best describes the gains from trade in the parable?

Only Ruby gains from trade
Both Ruby and Frank gain from trade (correct)
Neither Ruby nor Frank gain from trade
Only Frank gains from trade

What do both Ruby and Frank gain from in the parable?

Producing both meat and potatoes
Specialization and trade (correct)
Producing only meat
Producing only potatoes

What is a production possibilities frontier?

Various mixes of output that an economy can produce (D) Signup and view all the answers

In the parable, if Ruby produces only meat and Frank produces only potatoes, what happens?

Both gain from trade (A) Signup and view all the answers

In the parable, if both Ruby and Frank produce both meat and potatoes, what happens?

Both gain from specialization and trade (B) Signup and view all the answers

According to the text, what is the purpose of the parable for the modern economy?

To illustrate the gains from trade (B) Signup and view all the answers

Which of the following best describes the production possibilities frontier (PPF)?

A curve that shows the maximum combination of two goods that can be produced with available resources (A) Signup and view all the answers

What does the production possibilities frontier (PPF) assume about Frank and Ruby's work hours?

They each work 8 hours per day (A) Signup and view all the answers

What is the purpose of trade between Frank and Ruby?

To allow each person to consume more meat and potatoes (D) Signup and view all the answers

What is absolute advantage?

The ability to produce a good using fewer inputs than another producer (A) Signup and view all the answers

Who has an absolute advantage in producing meat?

Ruby (A) Signup and view all the answers

Who has an absolute advantage in producing potatoes?

Ruby (C) Signup and view all the answers

What is the trade ratio between meat and potatoes?

5 oz of meat for 15 oz of potatoes (A) Signup and view all the answers

According to the text, what is the principle of comparative advantage?

Each good should be produced by the individual that has the smaller opportunity cost of producing that good (C) Signup and view all the answers

According to the text, what is the formula for calculating the opportunity cost of one good?

Opportunity cost of one good = 1 / Opportunity cost of the other (B) Signup and view all the answers

Based on the information provided, which country has a comparative advantage over good X?

Country A (C) Signup and view all the answers

Based on the information provided, which country has a comparative advantage over good Y?

Country B (A) Signup and view all the answers

According to the text, can one person have comparative advantage in both goods?

No, one person cannot have comparative advantage in both goods (A) Signup and view all the answers

According to the text, what does the principle of comparative advantage explain?

Both interdependence and gains from trade (D) Signup and view all the answers

According to the text, what determines a country's comparative advantage?

The availability of capital and labor in a country (C) Signup and view all the answers

Which of the following is a benefit of trade between China and the United States?

It allows Americans to buy goods at a lower cost (A) Signup and view all the answers

Which statement accurately reflects the author's view on trade between China and the United States?

The author believes trade with China is beneficial for most Americans (A) Signup and view all the answers

What does the author mean by 'they can buy goods that are made or assembled more cheaply in China'?

Americans can purchase goods at a lower price from China (D) Signup and view all the answers

According to the text, why does trade with China benefit most Americans?

They can buy goods at a lower cost (B) Signup and view all the answers

What is the author's main argument in favor of trade with China?

It makes most Americans better off (C) Signup and view all the answers

Which of the following is NOT mentioned as an advantage of trade with China?

Higher quality of goods (C) Signup and view all the answers

What is the author's view on the impact of trade with China on Americans?

Most Americans benefit from trade with China (C) Signup and view all the answers

What is the author's main point about trade between China and the United States?

Trade with China makes most Americans better off (A) Signup and view all the answers

What does the author imply about the affordability of goods made or assembled in China?

Goods made or assembled in China are more affordable for Americans (C) Signup and view all the answers