Question 1

Which of the following best describes the production possibilities curve (PPC)?

Accepted Answer

It shows the relationship between the maximum production of one good for a given level of production of another good.

Question 2

Suppose you have 8 hours per day to allocate between making websites and computer programs. Each website takes 1 hour, and each computer program takes $$\frac{1}{2}$$ hour. What is the equation for your production possibilities curve (PPC)?

Accepted Answer

$$C = 16 - 2W$$

Question 3

On a PPC, what does a point below the curve (such as Point A) represent?

Accepted Answer

An inefficient use of resources.

Question 4

If you move from producing 4 websites and 8 computer programs to producing 6 websites and 4 computer programs, what is the opportunity cost of the additional 2 websites?

Accepted Answer

4 computer programs

Question 5

Why is the slope of the PPC typically negative?

Accepted Answer

Because producing more of one good requires giving up production of another due to limited resources.

Question 6

Which statement best explains the basis for trade between two countries?

Accepted Answer

Trade is based on comparative advantage, not absolute advantage.

Question 7

Suppose Olivia’s opportunity cost of producing one website is $$\frac{1}{2}$$ computer program, and your opportunity cost is 2 computer programs. Who should specialize in producing websites?

Accepted Answer

Olivia

Question 8

If you have an absolute advantage in producing both websites and computer programs, can there still be gains from trade with Olivia?

Accepted Answer

Yes, as long as comparative advantage exists.

Question 9

What does the term 'terms of trade' refer to in international economics?

Accepted Answer

The exchange rate between goods; the 'price' of one good in terms of another.

Question 10

If the opportunity cost of producing a program for you is $$\frac{3}{2}$$ websites and for Olivia is 2 websites, what is the possible range for the terms of trade for one program?

Accepted Answer

$$\frac{3}{2} to 2 $$websites

Question 11

Which of the following is NOT a typical argument against free trade?

Accepted Answer

Free trade always increases domestic consumer surplus.

Question 12

What is protectionism?

Accepted Answer

The view that governments should control trade due to the harmful effects of free trade.

Question 13

On a PPC, what does a point above the curve (such as Point C) represent?

Accepted Answer

An unattainable level of production with current resources.

Question 14

If Denmark is an exporting nation for tennis shoes, who are the winners and losers?

Accepted Answer

Producers gain, consumers lose.

Question 15

If Denmark is an importing nation for tennis shoes, who are the winners and losers?

Accepted Answer

Consumers gain, producers lose.

Question 16

Suppose a country imposes a tariff on imports. What is the effect on consumer surplus?

Accepted Answer

Consumer surplus decreases.

Question 17

What is the deadweight loss associated with a tariff?

Accepted Answer

The loss of total surplus that is not gained by producers, consumers, or the government.

Question 18

If a quota is imposed instead of a tariff, who receives the quota rent?

Accepted Answer

The foreign exporter.

Question 19

Why might a country prefer to join the WTO rather than a preferential trade agreement (PTA) or customs union (CU)?

Accepted Answer

The WTO offers broader protection and negotiation power, especially for smaller countries.

Lecture 10 Notes (chp.8)

Study Guide - Practice Questions

Study Guide - Flashcards