Mastering Comparative Advantage and Opportunity Cost

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Questions and Answers

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?

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

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

<p>Both gain from trade (A)</p> Signup and view all the answers

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

<p>Both gain from specialization and trade (B)</p> Signup and view all the answers

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

<p>To illustrate the gains from trade (B)</p> Signup and view all the answers

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

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

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

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

What is the purpose of trade between Frank and Ruby?

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

What is absolute advantage?

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

Who has an absolute advantage in producing meat?

<p>Ruby (A)</p> Signup and view all the answers

Who has an absolute advantage in producing potatoes?

<p>Ruby (C)</p> Signup and view all the answers

What is the trade ratio between meat and potatoes?

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

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

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

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

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

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

<p>Country A (C)</p> Signup and view all the answers

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

<p>Country B (A)</p> Signup and view all the answers

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

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

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

<p>Both interdependence and gains from trade (D)</p> Signup and view all the answers

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

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

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

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

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

<p>The author believes trade with China is beneficial for most Americans (A)</p> 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'?

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

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

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

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

<p>It makes most Americans better off (C)</p> Signup and view all the answers

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

<p>Higher quality of goods (C)</p> Signup and view all the answers

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

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

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

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

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

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

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