Question 1

Suppose a country can produce either 10 units of good X or 20 units of good Y with its available resources. What is the opportunity cost of producing 1 unit of good X?

Accepted Answer

$$2$$ units of good Y$

Question 2

Which of the following best describes the concept of comparative advantage?

Accepted Answer

The ability to produce a good at a lower opportunity cost than another agent

Question 3

If Denmark's domestic price for tennis shoes is higher than the world price, what will happen when Denmark opens up to free trade?

Accepted Answer

Denmark will import tennis shoes

Question 4

On a production possibilities curve (PPC), what does a point inside the curve represent?

Accepted Answer

An inefficient use of resources

Question 5

Suppose California can produce 10 apricots or 2 bananas, and Florida can produce 1 apricot or 8 bananas. Who has the comparative advantage in producing bananas?

Accepted Answer

Florida

Question 6

If the opportunity cost of producing 1 website for Olivia is $$\frac{1}{2}$$ program, and for you it is $$2$$ programs, who should specialize in producing websites?

Accepted Answer

Olivia

Question 7

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

Accepted Answer

Increasing consumer surplus

Question 8

A tariff is imposed on imported textiles. Which of the following is a likely result?

Accepted Answer

Government revenue increases

Question 9

If the world price of a good is above the domestic price, what happens to producer and consumer surplus when a country opens to trade?

Accepted Answer

Producer surplus increases, consumer surplus decreases

Question 10

Suppose the opportunity cost of producing 1 banana in California is $$5$$ apricots, and in Florida it is $$\frac{1}{8}$$ apricot. What is the possible range for the terms of trade for 1 banana?

Accepted Answer

Between $$1/8$$ and $$5$$ apricots

Question 11

Which of the following would cause a country’s production possibilities curve (PPC) to shift outward?

Accepted Answer

An improvement in technology

Question 12

If a country imposes a tariff on imports, what is the effect on deadweight loss?

Accepted Answer

Deadweight loss increases

Question 13

Which of the following best explains why specialization and trade can make both parties better off?

Accepted Answer

Each party can consume beyond their own PPC

Question 14

Suppose the world price of textiles is $$5$$ and the domestic price is $$15. If 10 $$workers produce 1 million units of textiles per year, and the equilibrium quantity falls from 15 million to 5 million units after opening to trade, how many fewer workers are employed?

Accepted Answer

$$150$$ workers

Question 15

Which of the following is true about absolute advantage?

Accepted Answer

It is the ability to produce more output with the same resources than another agent

Question 16

If a country is an importer of a good after opening to trade, who are the winners and losers?

Accepted Answer

Consumers win, producers lose

Question 17

Which of the following is a real-world example of the infant industry argument against free trade?

Accepted Answer

A developing country imposes tariffs to help its new solar panel industry compete with established foreign producers

Question 18

If the slope of the PPC is $$-2$$, what does this mean in terms of opportunity cost?

Accepted Answer

Producing 1 more unit of the good on the y-axis costs 2 units of the good on the x-axis

Question 19

Which of the following is a likely effect of free trade on a country’s overall welfare?

Accepted Answer

Overall welfare increases, even though there are winners and losers

Question 20

Suppose the government imposes a tariff that raises the price of an imported good. Which area on a supply and demand diagram represents the deadweight loss from the tariff?

Accepted Answer

The areas that are lost to both consumers and producers and not gained by the government

Microeconomics Chapter 8: Trade – Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards