Quiz on the PPC, Opportunity Cost, and the Gains from Trade

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1. During the time when she took this quiz, Susannah could instead have practiced her violin or done her French homework. She thinks that if she hadn't taken the quiz, she would have done her French homework. Her opportunity cost of taking the quiz is the value of

(a) practicing her violin
(b) doing her French homework
(c) practicing her violin and doing her French homework
(d) the time it took to do the quiz

2. Suppose that there are only two countries, Atlantis and Mu, and two goods, snorkels and submarines. If Atlantis has a comparative advantage in snorkels, then

(a) Atlantis has an absolute advantage in snorkels.
(b) Mu has an absolute advantage in snorkels.
(c) Mu has a comparative advantage in submarines.
(d) Mu has an absolute advantage in submarines.

3. Which of the following statements concerning opportunity cost and the pattern of international trade is correct?

(a) Absolute advantage implies comparative advantage.
(b) Raritania has a comparative advantage over Hudsonia in the production of brickbats if it can produce a brickbat with fewer of all inputs.
(c) When opportunity costs are the same in Raritania as in Hudsonia for all commodities, no mutual gains from specialization and trade are possible between the two countries.
(d) If Raritania is more productive than Hudsonia in producing all goods and services, then there are no possible mutual gains from trade between the two countries.

4. Suppose that one day's labor in Chile and Argentina has productivities in making beef and wine given in the table at right. Then we can conclude that

	Beef	Wine
Chile	4	12
Argentina	2	5

(a) Chile has a comparative advantage in beef production.
(b) Argentina has an absolute advantage in wine production.
(c) Argentina has an absolute advantage in beef production.
(d) Argentina has a comparative advantage in beef production.

5. Suppose that labor productivity in Chile and Argentina in making beef and wine is described by the table in the previous question. Assume also that each country is initially producing some of each good. Then we can conclude that

(a) Both Chile and Argentina can gain from trade if Chile exports beef and Argentina exports wine.
(b) Both Chile and Argentina can gain from trade if Argentina exports beef and Chile exports wine.
(c) Neither Chile and Argentina can gain from trade.
(d) Chile can gain from trade but Argentina cannot gain from trade.

6. By engaging in international trade, nations can, in effect,

(a) consume at any point on their production possibility curves.
(b) consume inside their production possibility curves.
(c) consume outside their production possibility curves.
(d) shift their production possibility curves outward.

7. If my opportunity cost of typing one term-paper page is baking three dozen cookies and your opportunity cost of typing one term-paper page is baking four dozen cookies, then

(a) you have a comparative advantage in cookie-baking.
(b) I have a comparative advantage in cookie-baking.
(c) you have an absolute advantage in cookie-baking.
(d) I have an absolute advantage in cookie-baking.

8. Production possibility curves are concave (bowed outward) because

(a) opportunity costs are always positive.
(b) resources are not equally well suited to the production of all goods and services.
(c) the problem of scarcity is ever-present.
(d) producing more of one good always entails producing less of another.

9. Dystopia has 120 workers. Each worker can produce 6 horseshoes or 3 hand grenades per day. Dystopia's production possibility curve is:

(a)	(b)
(c)	(d)

10. In the previous question, Dystopia's production possibility curve is a straight line because in this instance

(a) there are only two goods in the model.
(b) resources are limited and Dystopia thus faces tradeoffs.
(c) all workers are equally productive in producing the two goods.
(d) this model is only an approximation, and closeness only counts in horseshoes and hand grenades.

11. To move to a point like C, this economy should

(a) raise wages.
(b) reduce inefficiency.
(c) encourage emigration by its citizens.
(d) engage in research and development.

12. In the diagram at right, the production possibility curve exhibiting increasing marginal opportunity cost at all points is

(a) a
(b) b
(c) c
(d) d

13. When we move from C to B along the production possibility curve illustrated at right, the opportunity cost of spittoons in terms of bassoons is:

(a) 35/68
(b) 54/50
(c) 14/15
(d) 15/14

14. When we move along the production possibility curve in the previous question from D to E, the opportunity cost of bassoons in terms of spittoons is

(a) 35/65
(b) 65/35
(c) 2/7
(d) 7/2

15. Production possibility curves for Glamis and Cawdor are illustrated below:

(a) Glamis has a comparative advantage in madeleines.
(b) Cawdor has a comparative advantage in madeleines.
(c) Glamis has an absolute advantage in madeleines.
(d) Cawdor has an absolute advantage in madeleines.