Question 1

Suppose the production possibility frontier (PPF) for a country is bowed outward, as shown in the first image. What does this shape indicate about opportunity costs as more of one good is produced?

Accepted Answer

Opportunity costs increase as more of one good is produced.

Question 2

Based on the PPF in the first image, what is the opportunity cost of producing the first 20 beers?

Accepted Answer

$$5$$ pizzas

Question 3

If a country moves from point A to the far right end of the PPF in the first image, what happens to the opportunity cost of producing beer?

Accepted Answer

It increases.

Question 4

According to the second image, what is the main benefit of trade between China and the United States?

Accepted Answer

Both countries can consume more than they could without trade.

Question 5

Given the data in the second image, what is the opportunity cost for China to produce one smartphone?

Accepted Answer

$$0.5$$ bushels of wheat

Question 6

If China specializes in producing smartphones and the United States specializes in producing wheat, what is the total production of smartphones and wheat after specialization (according to the second image)?

Accepted Answer

$$4,000$$ smartphones and $$12,000$$ bushels of wheat

Question 7

What is the definition of comparative advantage?

Accepted Answer

The ability to produce a good or service at a lower opportunity cost than competitors.

Question 8

If the terms of trade are set at one-for-one (1 smartphone for 1 bushel of wheat), which of the following is true for both China and the United States?

Accepted Answer

Both countries will benefit because the terms are between their opportunity costs.

Question 9

Why might we not see complete specialization in the real world, even if countries have comparative advantages?

Accepted Answer

Production of many goods involves increasing opportunity costs.

Question 10

Suppose the United States has an absolute advantage in both smartphones and wheat. According to the theory of comparative advantage, should the United States still trade with China?

Accepted Answer

Yes, because both countries can benefit if they specialize according to comparative advantage.

Question 11

If producing 20 more beers requires giving up 25 more pizzas (as shown in the first image), what is the marginal opportunity cost of producing one additional beer in this range?

Accepted Answer

$$1.25$$ pizzas

Question 12

Which of the following is NOT a source of comparative advantage?

Accepted Answer

Absolute advantage in all goods

Question 13

If China exports 1,500 smartphones to the United States in exchange for 1,500 bushels of wheat, what is the new consumption for China (according to the second image)?

Accepted Answer

$$2,500$$ smartphones and $$1,500$$ bushels of wheat

Question 14

Which group is most likely to lose from international trade between China and the United States, based on the example in the study materials?

Accepted Answer

Chinese wheat farmers

Question 15

If the opportunity cost of producing one smartphone in the United States is $$2$$ bushels of wheat, what is the opportunity cost of producing one bushel of wheat in the United States?

Accepted Answer

$$0.5$$ smartphone

Question 16

Which of the following best describes the gains from trade?

Accepted Answer

The increased consumption made possible by trade.

Comparative Advantage and Gains from International Trade

Study Guide - Practice Questions

Study Guide - Flashcards