Questions 1

1. The principle of Absolute Advantage refers to the situation in which one

producer:
A. Can produce a good in greater quantities than other producers.
B. Can produce a good using fewer resources than other producers.
C. Is able to produce exactly the same quantity of a good as other producers.
D. Has access to more resources than other producers.
Questions 2
2. The principle of Comparative Advantage refers to the situation in which one
producer:
A. Has a lower opportunity cost than other producers in the production of a
good.
B. Can produce a good in greater quantities than other producers.
C. Has access to more resources than other producers.
D. Can produce a good using fewer resources than other producers.
Questions 3
3. Which of the following is true regarding the principle of Absolute Advantage?
A. Nations should specialize in producing those goods for which they have a
lower opportunity cost.
B. Nations should export goods for which they do not have an Absolute
Advantage.
C. Nations should specialize in producing those goods for which they have an
Absolute Advantage.
D. Nations should export goods for which they have a higher opportunity cost.
Questions 4
4. Which of the following is true regarding the principle of Comparative
Advantage?
A. Nations should specialize in producing those goods for which they use the
least amounts of resources.
B. Nations should specialize in producing those goods for which they have the
lowest opportunity cost.
C. A nation has nothing to gain from trade if it uses fewer resources than other
nations to make any good.
D. A nation has nothing to gain from trade if it uses more resources than other
nations to make any good.
Questions 5
5. The boy next door has offered to mow Tiger Woods' lawn. It will take this boy
twice as long as Tiger Woods to mow the lawn. Would Tiger Woods let the boy
mow his lawn, instead of doing it himself?
A. No, because Tiger Woods has better things to do with his money than pay the
boy to mow the lawn.
B. Yes, because the boy next door needs the money and Tiger Woods can help
him out that way.
C. No, because it will be more efficient if Tiger Woods mows his own lawn, since
he can do it faster.
D. Yes, as long as the boy's opportunity cost is less than half of Tiger Woods'
opportunity cost.
Questions 6
6. Suppose that Jill can type 10 pages per hour in the computer, while Jim can only
type 8. Further suppose that Jill can review 5 articles per hour while Jim can only
review 2. If they are working on a final project together, who should specialize in
what task in order to be as productive as possible?
A. Jill should specialize in typing and Jim in reviewing articles.
B. Jill should specialize in reviewing articles and Jim in typing.
C. Jill should perform both tasks, since she is better at both than Jim.
D. Jim should perform both tasks, since he is better at both than Jill.
Questions 7
7. The principle of Comparative Advantage argues all of the following, EXCEPT:
 A. Specialization allows producers to produce goods for which they have a lower
opportunity cost.
B. Free trade allows producers to specialize.
C. As producers specialize, overall production increases, making everybody
better off.
D. Free trade tends to cause bankruptcies and high unemployment in the long
run.