Chapter 3

Reading Quiz

Multiple Choice

1. If one person can perform a task in fewer hours than another, you know the person has _______________________ in performing the task.

a. an absolute advantage.

b. a comparative advantage.

c. both a comparative advantage and an absolute advantage.

d. neither an absolute nor a comparative advantage.

e. either an absolute or a comparative advantage.

2. If a person's opportunity cost of performing a task is lower than another person's, you know the person has _______________________ in performing the task.

a. an absolute advantage.

b. a comparative advantage.

c. both a comparative advantage and an absolute advantage.

d. neither an absolute nor a comparative advantage.

e. either an absolute or a comparative advantage.

3. Which of the following can be a source of comparative advantage for an individual?

a. inborn talent

b. education

c. training

d. experience

e. all of the above

4. Which of the following can be a source of comparative advantage for a nation?

a. natural resources

b. entrepreneurship

c. speaking the English language

d. standards of production quality

c. all of the above

For Questions 5-7 refer to the graph provided.

Cloth

(yards)

a

x e

c

x b

d

Wine (barrels)

5. The economy efficiently produces BOTH cloth and wine at which point?

a. a

b. b

c. c

d. d

e. e

6. Which point could represent production in the economy if it were experiencing unemployment?

a. a

b. b

c. c

d. d

e. e

7. Which point on the graph is not currently attainable for this economy?

a. a

b. b

c. c

d. d

e. e

8. If a country experiences increasing opportunity costs, its production possibilities curve will

a. be a straight line.

b. bow outward.

c. bow inward.

d. shift out from the origin.

e. shift in toward the origin.

9. According to the Low-Hanging Fruit Principle, in expanding production of a good, you should first employ those resources

a. where you have comparative advantage.

b. where you have absolute advantage.

c. with the highest opportunity cost.

d. with the lowest opportunity cost.

e. that have the lowest price.

10. Which of the following is the basis for an argument against free trade?

a. The Principle of Comparative Advantage

b. the change in the total value of goods and services resulting from trade

c. the distribution of the benefits from trade

d. The Principle of Increasing Opportunity Costs

e. all of the above

Problems/Short Answer

1. A factory can either be used to produce t-shirts or shorts. The production possibilities for the factory are shown on the graph below. Refer to the graph and identify ALL points that are:

a. efficient

b. unattainable

c. the result of working less than 8 hours.

# t-shirts

a . e

b

. f

. d

c

Pairs of shorts

2. Two countries, Eastland and Westland can both produce rice or machines. The opportunity cost of a machine in Eastland is 50 bushels of rice. The opportunity cost of a machine in Westland is 200 bushels of rice. The most rice Eastland can possibly produce is 10,000 bushels and the most rice Westland can possibly produce is 2 million.

a. Graph the production possibilities curve for each country.

b. If the two countries sign a trade agreement to specialize according to their comparative advantage, what should each country produce?

c. If these are the only two countries in the world that are open to trade, what are the maximum and minimum prices that can prevail on the world market for a machine (in terms of bushels of rice)?