When one producer can create more of a good than another producer using the same quantity of resources, the first producer has

93. When one producer can create more of a good than another producer using the same quantity of resources, the first producer has:

         a.  a zero-sum game.

         b.  gains from trade.

         c.  an absolute advantage.

         d.  a comparative advantage.

         e.  increasing relative costs.

ANS: C        

  95.  Michael and Angelo are both artists who can create sculptures or paint paintings each day. The following table describes their maximum outputs per day. Does either person have an absolute advantage?

	Sculptures	Paintings
Michael	10	5
Angelo	6	2

         a.  Yes, Michael has an absolute advantage in both sculptures and paintings.

         b.  Yes, Angelo has an absolute advantage in both sculptures and paintings.

         c.  Yes, Michael has an absolute advantage in paintings, and Angelo has an absolute advantage in sculptures.

         d.  Yes, Michael has an absolute advantage in sculptures, and Angelo has an absolute advantage in paintings.

         e.  No, neither has an absolute advantage.

ANS: A        

The figures below depict the production possibilities frontiers (PPFs) for two people who can allocate the same amount of time between building wooden boats and solving crimes. Refer to these figures to answer the next two questions.

  99.  Which statement best describes absolute advantage?

         a.  DiNozzo has an absolute advantage in the production of wooden boats.

         b.  DiNozzo has an absolute advantage in both.

         c.  Gibbs has an absolute advantage in solving crimes, whereas DiNozzo has an absolute advantage in making wooden boats.

         d.  Gibbs has an absolute advantage in both.

         e.  Gibbs has an absolute advantage in making wooden boats, whereas DiNozzo has an absolute advantage in solving crimes.

ANS: D        

100.  What is DiNozzo’s opportunity cost for solving a crime?

         a.  20 solved crimes

         b.  30 solved crimes

         c.  5 solved crimes

         d.  1/20 of a boat

         e.  1/10 of a boat

ANS: D     

101.  Which statement best describes the absolute advantage as shown in the graphs?

         a.  Pam has an absolute advantage in the production of both.

         b.  Jim has an absolute advantage in the production of both.

         c.  Jim has an absolute advantage in the production of pizzas, and Pam has an absolute advantage in the production of stromboli.

         d.  Pam has an absolute advantage in the production of pizzas, and Jim has an absolute advantage in the production of stromboli.

         e.  They both have an absolute advantage in the production of stromboli.

ANS: D        

     

103.  If Elaine can produce more output from a set amount of resources than Jerry can, you know that:

         a.  Elaine has a comparative advantage.

         b.  Jerry has a comparative advantage.

         c.  Elaine has an absolute advantage.

         d.  Jerry has an absolute advantage.

         e.  Elaine has a normative advantage.

ANS: C        

105.  The ability of one producer to produce a good at a lower opportunity cost than another producer is called:

         a.  a normative statement.

         b.  a zero-sum game.

         c.  absolute advantage.

         d.  comparative advantage.

         e.  the law of increasing relative cost.

ANS: D        

107.  You have a comparative advantage in producing a good whenever:

         a.  you enjoy producing that good.

         b.  you can produce more of the good than someone else can using the same resources.

         c.  your opportunity cost is constant.

         d.  your opportunity cost of producing that good is lower than that of other producers.

         e.  you have specific training in the production of that good.

ANS: D        

109.  If Jim can sell paper at a lower opportunity cost than Dwight can, then:

         a.  Jim has an absolute advantage in paper sales.

         b.  Dwight has an absolute advantage in paper sales.

         c.  Jim has a positive advantage in paper sales.

         d.  Jim has a comparative advantage in paper sales.

         e.  Dwight has a comparative advantage in paper sales.

ANS: D        

111.  Consider the following scenario. Two friends, Rachel and Joey, enjoy baking bread and making apple pies. Rachel takes two hours to bake one loaf of bread and one hour to make one pie. Joey takes four hours to bake one loaf of bread and four hours to make one pie. If Rachel and Joey decide to specialize in order to maximize their combined output, who should produce what?

         a.  Joey should specialize in making pies because he has an absolute advantage.

         b.  Rachel should specialize in making pies and Joey should specialize in making bread.

         c.  Joey should specialize in making pies and Rachel should specialize in making bread.

         d.  Rachel should specialize in making bread and pies because she has a comparative advantage in both.

         e.  Rachel should not specialize because she is better at producing both.

ANS: B        

113.  The accompanying figures depict the production possibilities frontiers (PPFs) for two people who can allocate the same amount of time between making pizzas and making stromboli. Which statement about comparative advantage is true?

         a.  Jim has a comparative advantage in the production of stromboli because his opportunity cost is lower.

         b.  Jim has a comparative advantage in the production of stromboli because his opportunity cost is higher.

         c.  Jim has a comparative advantage in the production of pizzas because his opportunity cost is lower.

         d.  Jim has a comparative advantage in the production of pizzas because his opportunity cost is higher.

         e.  Jim has a comparative advantage in the production of both pizzas and stromboli.

ANS: A        

115.  Suppose that Sheldon and Leonard can either run errands or wash dishes. Their maximum output per hour is listed in the following table. Given the same quantity of resources, at what terms of trade (relative price ratio) could they specialize and trade so that both consume outside their own production possibilities frontier (PPF)?

	Errands Run	Opportunity Cost of 1 Errand	Dishes Washed	Opportunity Cost of 1 Dish Washed
Sheldon	1	60 dishes	60	1/60 errand
Leonard	3	15 dishes	45	1/15 errand

         a.  1 errand run per 75 dishes washed

         b.  1 errand run per 30 dishes washed

         c.  1 errand run per 12 dishes washed

         d.  1 errand run per 10 dishes washed

         e.  1 errand run per 6 dishes washed

ANS: B     

117.  Suppose that, on a particular Saturday, Mark Zuckerberg and Bill Gates can either plant trees or spread mulch in their gardens. Their maximum output per day is listed in the following table, along with blanks where you can calculate the opportunity cost. At what terms of trade (relative price ratio) could they specialize and trade with one another so that both have more trees planted and mulch spread than they could accomplish on their own?

	Trees Planted	Opportunity Cost of 1 Tree	Amount of Mulch Spread (in cubic yards)	Opportunity Cost of Spreading 1 Cubic Yard of Mulch
Zuckerberg	20		30
Gates	15		30

         a.  12 trees planted per 12 cubic yards of mulch spread

         b.  10 trees planted per 12 cubic yards of mulch spread

         c.  9 trees planted per 12 cubic yards of mulch spread

         d.  7 trees planted per 12 cubic yards of mulch spread

         e.  5 trees planted per 12 cubic yards of mulch spread

ANS: D       

119.  Consumer goods:

         a.  are produced today to be used to produce more goods in the future.

         b.  are produced today to be consumed at some point in the future.

         c.  are invested today in order to consume more today.

         d.  are produced today to be consumed today.

         e.  generate economic growth.

ANS: D        

121.  Goods that are produced for current consumption are called:

         a.  capital goods.

         b.  consumer goods.

         c.  investment goods.

         d.  normal goods.

         e.  opportunity goods.

ANS: B        

123.  Forgoing current consumption so that those resources can be used to produce new capital is called:

         a.  absolute advantage.

         b.  comparative advantage.

         c.  investment.

         d.  scarcity.

         e.  saving.

ANS: C        

125.  The process of using current resources to create new capital is:

         a.  absolute advantage.

         b.  comparative advantage.

         c.  specialization.

         d.  investment.

         e.  free.

ANS: D        

127.  Over the last 20 years, countries such as India and China have:

         a.  consumed heavily with little regard for the future.

         b.  invested heavily and enjoyed significant economic growth.

         c.  eliminated the problem of scarcity.

         d.  produced outside their production possibilities frontier (PPF).

         e.  produced wholly for current consumption.

ANS: B     

129.  Greater investment in capital goods today leads to:

         a.  greater growth in the production possibilities frontier (PPF) in the future.

         b.  greater consumption today.

         c.  the end of scarcity.

         d.  less opportunity cost.

         e.  scarcity.

ANS: A     

Refer to the following figures to answer the next two questions.

131.  Which allocation point in the short-run production possibilities frontier (PPF) will lead to NO GROWTH in the long-run PPF?

         a.  point A

         b.  point B

         c.  point C

         d.  point D

         e.  point E

ANS: A    

132.  Which allocation point in the short-run production possibilities frontier (PPF) will lead to the most significant growth in the long-run PPF?

         a.  point A

         b.  point B

         c.  point C

         d.  point D

         e.  point E

ANS: E