1. According to the concept of comparative advantage, a good should be produced in that nation where:
A.its domestic opportunity cost is greatest.
B.money is used as a medium of exchange.
C.its domestic opportunity cost is least.
D.the terms of trade are maximized.


2. The terms of trade:
A.show the ratio at which nations will exchange two goods.
B.show how the gains from trade can be equally shared.
C.show the value of one nation's currency in terms of another nation's currency.
D.compare the volume of a nation's exports and imports.


3. The primary benefits of international trade include:
A.the more efficient use of world resources and higher living standards.
B.greater stability of domestic output, employment, and the price level.
C.diminished dependence on foreign supplies of goods and materials.
D.greater economic security for our domestic producers.


4.


Refer to the above domestic production possibilities curve for Abernorelco. The gain to Abernorelco from specialization and international trade is represented by a move from:
A.A to B.
B.C to A.
C.C to D.
D.B to E.


5. Countries engaged in international trade specialize in production based on:
A.relative levels of GDP.
B.comparative advantage.
C.relative exchange rates.
D.relative inflation rates.


6.
Answer the next question(s) on the basis of the following production possibilities data for Gamma and Sigma. All data are in tons.

Gamma production possibilities:



Sigma production possibilities:

R-1 REF37013

On the basis of the above information:
A.Gamma should export both tea and pots to Sigma.
B.Sigma should export tea to Gamma and Gamma should export pots to Sigma.
C.Gamma should export tea to Sigma and Sigma should export pots to Gamma.
D.Gamma should export tea to Sigma, but it will not be profitable for the two nations to exchange pots.



7.
Answer the next question(s) on the basis of the following production possibilities data for Gamma and Sigma. All data are in tons.

Gamma production possibilities:



Sigma production possibilities:

R-1 REF37013

Refer to the above data. What are the limits of the terms of trade between Gamma and Sigma?
A.1 tea = 2 pots to 1 tea = 6 pots
B.1 tea = 3 pots to 1 tea = 6 pots
C.1 tea = 2 pots to 1 tea = 3.5 pots
D.1 tea = 1 pot to 1 tea = 3 pots



8.
Answer the next question(s) on the basis of the following production possibilities data for Gamma and Sigma. All data are in tons.

Gamma production possibilities:



Sigma production possibilities:

R-1 REF37013

Refer to the above data. Assume that before specialization and trade Gamma and Sigma both chose production possibility "C." Now if each specializes according to comparative advantage, the gains from specialization and trade will be:
A.40 tons of pots.
B.20 tons of tea and 20 tons of pots.
C.20 tons of tea.
D.40 tons of tea.



9. If country A can produce both goods X and Y more efficiently, that is, with smaller absolute amounts of resources, than can country B:
A.mutually advantageous specialization and trade between A and B may still be possible.
B.we can conclude that A is an industrially advanced economy and B is a developing economy.
C.it will necessarily be advantageous for B to import both X and Y from A.
D.then there is no possible basis for mutually advantageous specialization and trade between A and B.


10. The terms of trade reflect the:
A.rate at which gold exchanges internationally for any domestic currency.
B.ratio at which nations will exchange two goods.
C.fact that the gains from trade will be equally divided.
D.cost conditions embodied in a single country's production possibilities curve.


11. Assume that by devoting all of its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all of its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y. We can conclude that:
A.the terms of trade will be 3X equals 1Y.
B.Alpha should specialize in Y and Beta in X.
C.Alpha should specialize in X and Beta in Y.
D.there is no basis for mutually beneficial specialization and trade.


12. In the theory of comparative advantage, a good should be produced in that nation where:
A.the production possibilities line lies further to the right than the trading possibilities line.
B.its cost is least in terms of alternative goods that might otherwise be produced.
C.its absolute cost in terms of real resources used is least.
D.its absolute money cost of production is least.


13.
R-2 F37026

Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The data contained in the production possibilities curves are based on the assumption of:
A.imperfect shiftability of resources as between beer and pizza production.
B.constant costs.
C.decreasing costs.
D.increasing costs.



14.
R-2 F37026

Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The opportunity cost of producing a:
A.pizza is 2 beers in both countries.
B.beer is 1/2 a pizza in both countries.
C.pizza in East Lothian is 1 beer.
D.beer in West Lothian is 1/2 a pizza.



15.
R-2 F37026

Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The data suggest that:
A.West Lothian should specialize in, and export, beer.
B.both countries will be better off if they do not engage in specialization and trade involving these two products.
C.West Lothian should specialize in, and export, pizza.
D.East Lothian should specialize in, and export, beer.



16.
R-2 F37026

Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The trading possibilities curves imply that:
A.both countries have a trade surplus that will result in economic growth.
B.the domestic production possibilities curves entail unemployment and/or the domestic misallocation of resources.
C.world resources will be allocated more efficiently if the two nations specialize and trade based on comparative advantage.
D.both nations will be worse off as a result of international specialization and trade.



17.
R-2 F37026

Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The trading possibilities curves suggest that the terms of trade are:
A.1.5 beers for 1 pizza.
B.1 beer for 2 pizzas.
C.2 beers for 1 pizza.
D.1 beer for 1.5 pizzas.



18. The fact that international specialization and trade based on comparative advantage can increase world output is demonstrated by the reality that:
A.the production possibilities curve of any two nations are identical.
B.a nation's production possibilities and trading possibilities lines coincide.
C.a nation's trading possibilities line lies to the right of its production possibilities line.
D.a nation's production possibilities line lies to the right of its trading possibilities line.


19.
Answer the next question(s) on the basis of the following information about the cost ratios for two products--fish (F) and chicken (C)--in Singsong and Harmony. Assume that production occurs under conditions of constant costs and these are the only two nations in the world.

Singsong: 1F = 2C
Harmony: 1F = 4C
R-3 REF37033

Refer to the above information. In Singsong the domestic real cost of each chicken:
A.is 1/2 a fish.
B.is 2 fish.
C.increases with the level of fish caught.
D.decreases with the level of fish caught.



20.
Answer the next question(s) on the basis of the following information about the cost ratios for two products--fish (F) and chicken (C)--in Singsong and Harmony. Assume that production occurs under conditions of constant costs and these are the only two nations in the world.

Singsong: 1F = 2C
Harmony: 1F = 4C
R-3 REF37033

Refer to the above information. If these two nations specialize based on comparative advantage:
A.Singsong will both produce chicken and catch fish.
B.Harmony will both produce chicken and catch fish.
C.Harmony will produce chicken and Singsong will catch fish.
D.Singsong will produce chicken and Harmony will catch fish.



21.
Answer the next question(s) on the basis of the following information about the cost ratios for two products--fish (F) and chicken (C)--in Singsong and Harmony. Assume that production occurs under conditions of constant costs and these are the only two nations in the world.

Singsong: 1F = 2C
Harmony: 1F = 4C
R-3 REF37033

Refer to the above information. Which one of the following would not be feasible terms for trade between Singsong and Harmony?
A.1 fish for 21/2 chicken
B.1 fish for 3 chicken
C.1 chicken for 1/5 of a fish
D.1 chicken for 1/3 of a fish



22. The gain from international trade is:
A.increased employment in the domestic export sector.
B.more goods than would be attainable through domestic production alone.
C.tariff revenue.
D.increased employment in the domestic import sector.


23. If a nation has a comparative advantage in the production of X, this means the nation:
A.cannot benefit by producing and trading this product.
B.must give up less of other goods than other nations in producing a unit of X.
C.has a production possibilities curve identical to those of other nations.
D.is not subject to increasing opportunity costs.


24.

R-4 REF37040

Refer to the above graphs. Stanville has a comparative advantage in producing:
A.product A.
B.product B.
C.both product A and B.
D.neither product A nor B.



25.

R-4 REF37040

Refer to the above graphs. Terryville has a comparative advantage in producing:
A.product A.
B.product B.
C.both product A and B.
D.neither product A nor B.



26.
R-5 F37048

Refer to the above diagram in which line AB is the United States production possibility curve and AC is its trading possibilities curve. We can conclude that the United States:
A.has chosen to specialize in the production of cheese.
B.has chosen to specialize in the production of beef.
C.has decided to trade beef for cheese.
D.is relatively more efficient than its trading partners in producing both cheese and beef.



27. The impact of increasing, as opposed to constant, costs is to:
A.intensify and prolong the comparative advantages that any nation may have initially.
B.expand the limits of the terms of trade.
C.cause the bases for further specialization to disappear as nations specialize according to comparative advantage.
D.cause nations to realize economies of scale in those products in which they specialize.


28. In the real world, specialization is rarely complete because:
A.nations normally experience increasing opportunity costs in producing more of the product in which they are specializing.
B.production possibilities curves are straight lines rather than curves bowed outward as viewed from the origin.
C.one nation's imports are necessarily another nation's exports.
D.international law prohibits monopolies.


29. The law of increasing opportunity costs:
A.applies to land-intensive commodities, but not to labor-intensive or capital-intensive commodities.
B.results in straight-line production possibilities curves rather than curves that are bowed outward from the origin.
C.refutes the principle of comparative advantage.
D.may limit the extent to which a nation specializes in producing a particular product.



This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test.