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t t t t t t t t t t
Name: Class: Date:
Chaptert2t-tThetPowertof tTradetandtComparativetAdvantage
1. Tradetcreatestvaluetbecause:
a. peopletget twhat ttheytwant.
b. raw tmaterialstarettransformed tintotfinished tproducts.
c. peopletexchangetthingsttheytdotnot twant tfortthingsttheytdo.
d. idletresourcestaretput ttotuse.
ANSWER:t c
2. eBaytcreatestvaluetby:
a. helpingtsellersttricktbuyerstintotpurchasingtbrokentitems.
b. movingtgoodstliketbrokentlasertpointerstfromtpeopletwhotdon't twant tthemttotpeopletwhotdo.
c. helpingtpeopletwithtthetsametpreferencestfind teachtother.
d. movingttoystfromtchildrentwhotwant tthemttotchildrentwhotdon't.
ANSWER:t b
3. David tsellsthistcar,twhichthetconsiderstworthless,ttotCamerontfort$200.tWhichtof tthetfollowingtstatementstistTRU
E?
a. David tand tCamerontmust thavetdifferent tpreferencestfortthetcar.
b. Thisttradetdid tnot tcreatetvaluetbecausetCamerontistbuyingtatcartthat tDavid tconsiderstworthless.
c. Camerontistthetonlytonetmadetbettertoff tbytthettrade.
d. David tistmadetbettertoff tbytthettrade,tbut tCamerontistmadetworsetoff.
ANSWER:t a
4. Marktvaluesthistdrumtset tat t$800,tand tEllatvaluesthertguitartat t$1,000.tSupposetthat tMarkttradesthistdrumtset tfortEll
a'stguitar.
a. ThisttradetmakestEllatworsetoff tbyt$200.
b. ThisttradetmakestMarktbettertoff tbyt$200.
c. Marktmust tvaluetElla'stguitartfortat tleast t$800,tand tEllatmust tvaluetMark'stdrumtset tfortat tleast
$1,000.
d. Thisttradetdecreasesttotaltvaluetbytmovingtthetguitartand tdrumtawaytfromtpeopletwhotplaced tathightvaluet
ontthem.
ANSWER:t c
5. Facilitatorstof ttradet(suchtastPierretOmidyar,tthetdevelopertof teBay):
a. maytbecometverytrichtsincettheytaretcreatingtvaluetfortmanytindividuals.
b. find tit tverythard ttotprofit tfromttheirtservicestsincettheytaretnot tdirectlytinvolved tintthettrades.
c. typicallytprofit tfromttheirtservicestonlytif ttheytaretablettotobtaintgovernment tpatent trights.
d. aretusuallytseentasttakingtadvantagetof tconsumers.
ANSWER:t a
6. Tradetmakestpeopletbettertoff twhen:
a. everyonetwantstthetsametthingstastothertpeople.
b. sometpeopletaretlesstproductivetthantothers.
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t t t t t t t t t t
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Chaptert2t-tThetPowertof tTradetandtComparativetAdvantage
c. peopletcannot tspecializetintcertaintactivities.
d. peoplethavetdifferent tpreferences.
ANSWER:t d
7. Eachtof t100tpeopletreceivestatrandomtitemtfromtatgrocerytstoretand tassignstit tatvaluetbetweent1t(low)tand t10t(hig
h).tTheyttradetthosetitemstamongtthemselvestfortitemsttheytprefertrathertthantthosettheytrandomlytreceived tand tthe
ntassigntatsecond tvaluet(again,t1ttot10)ttotthetitemtthat ttheytend tuptwithtaftertthettradingtconcludes.tHow twould tthet
sumtof tthosetvaluestbeforettradingtcomparetwithtthetsumtafterttrading?
a. Thetvaluetwould tstaytthetsametbecausetnotnew tgoodstweretintroduced.
b. Thetvaluetwould tstaytthetsametbecausetnotonethastatcomparativetadvantage.
c. Afterttrading,tvaluetwould tbetlowertbecausetnotonetcantspecialize.
d. Afterttrading,tvaluetwould tbethighertbecausetpreferencestaretdiverse.
ANSWER:t d
8. Whichtof tthetfollowingtistleast tlikelytatconsequencetof tthetdivisiontof tknowledge?
a. thetdevelopment tof tthetcomputerttablet
b. attotallytself-sufficient tfamilytfarm
c. atnew tdeliverytmethod tfortcancer-fightingtdrugs
d. thetprovisiontof tatnew tbiketpathtintyourtcommunity
ANSWER:t b
9. Onlytatverytsmalltportiontof tpeopletwhotusetmicrowavestknowthowttheytwork.tThististantexampletof:
a. atproductiontpossibilitytfrontier.
b. divisiontof tknowledge.
c. absolutetadvantage.
d. opportunitytcost.
ANSWER:t b
10. Divisiontof tknowledgetreferstto:
a. dividingttaskstintotdifferent tsubtaskstand thavingtonetpersontperformtalltthesetsubtasks.
b. peopletlearningtdifferent ttaskstintwhichttheytspecialize.
c. assigningtonetpersonttotlearntalltthetdifferent twaysttotperformtthetsamettask.
d. limitingtwhat teachtpersontknowstabout tanothertperson.
ANSWER:t b
11. Whichtof tthetfollowingtsituationstwould tlead ttotmoretstarvation?
a. atworld twhereteveryonetgrowsthistorthertowntfood tand ttheretistnottrade
b. atworld twithttradetand tlotstof tspecialization
c. atworld twithtimmensetdivisiontof tknowledge
d. atworld twheretonlytsometpeopletspecializetintfood tand teveryonetelsetproducestsomethingtelse
ANSWER:t a
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t t t t t t t t t t
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Chaptert2t-tThetPowertof tTradetandtComparativetAdvantage
12. Thetmaintreasontspecializationtcantraisetproductivitytistthat:
a. knowledgetinthumantbrainstistlimited.
b. sometpersonsthavetmoretknowledgetthantothers.
c. it tistalwaystgood ttotknowtlesstthantmore.
d. it tistimpossiblettotlearntanythingtwell.
ANSWER:t a
13. Knowledgetincreasest and tspecializationt totaltoutput.
a. education;tdecreases
b. productivity;tincreases
c. perception;tincreases
d. economiestof tscale;tdecreases
ANSWER:t b
14. Economictgrowthtintthetmodernteratistprimarilytduettotthe:
a. increasestintthetnumbertof tpeople.
b. increasestintmoney.
c. definingtof tnationtborders.
d. creationtof tnew tknowledge.
ANSWER:t d
15. Specializationtand ttradetcant thetpertunit tcost tof tproductiontbecauset .
a. decrease;tit tallowstfortmoretsmall-scaletproduction
b. decrease;tit tcreatesteconomiestof tscaletassociated twithtlarge-scaletproduction
c. increase;tit trequirestmoretexpensive,tspecialized tequipment
d. increase;tmoretexpensivetlabortistneeded
ANSWER:t b
16. ThetUnited tStatestand tthetEuropeantUniontaretgroupstof tsemi-
independent tstatestthat thavetcomettogethertundertantagreement twherebytresourcestcanttraveltfreelytacrosstborderstan
d tatcommontcurrencytistintuse.tWhichtof tthetfollowingtstatementstbest texplainsthow tthistallowstfortthetachievement to
f teconomiestof tscale?
a. Eachtstatetortcountrytcantnowttarget tlargertmarketstand tcantthustearntmoretexport trevenue.
b. Statestand tcountriestnotlongerthavettotworrytabout tborderstimpedingttrade.
c. Eachtstatetortcountrytcantadopt tlarge-
scaletproductionttechniquestthat tallow tlowertpertunit tcoststof tproduction.
d. Thetremovaltof ttradetborderstand tatcommontcurrencytenhancesttradetbetweentmembertstates.
ANSWER:t c
17. Onetof tthetoutcomestof tspecializationtistthat tit tleadsttot ,twhicht thetaveragetcost tof tproduction.
a. smaller-scaletproduction;tlowers
b. smaller-scaletproduction;traises
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Chaptert2t-tThetPowertof tTradetandtComparativetAdvantage
c. larger-scaletproduction;traises
d. larger-scaletproduction;tlowers
ANSWER:t d
18. If teachtof tusthad ttotgrow talltof tourtowntfood:
a. civilizationtwould tcollapsetand tbillionstof tpeopletwould tstarve.
b. wetwould thavetmorettimetfortothertpursuits.
c. peopletwould tbetricher,tsincettheytwould tnotlongerthavettotspend tmoneytontgroceries.
d. thettotaltamount tof tknowledgetintsocietytwould tincrease,tsinceteveryonetwould thavettotlearntabout tfarm
ing.
ANSWER:t a
19. If tinstead tof tspecialized tdoctorst(neurologists,tcardiologists,tgastroenterologists,tetc.)twethad tdoctorstwhoteac
htknew tthetsametthingstabout talltaspectstof tmedicine,tit twould tbe:
a. bettertbecausetthentwetcould tjust tgottotonetdoctortwithtnotlosstof tqualitytintmedicaltcare.
b. bettertbecausettotaltmedicaltknowledgetintsocietytwould tincrease.
c. worsetbecausetthethumantbraintistlimited.
d. worsetbecausettotaltmedicaltknowledgetintsocietytwould tdecrease.
ANSWER:t d
20. RosestgrowntintKenyattravelttotAmsterdamtand tultimatelyttotyourtlocaltflowertshoptbecause:
a. thetWorld tRosetCommissiontcoordinatestthetdifferent telementstof tthetrosetindustry.
b. marketstcoordinatetthetspecializationtand ttradetnecessarytfortthetflowertindustryttotfunction.
c. of tthettradetagreement tbetweentthetgovernmentstof tKenyatand tAmsterdam.
d. customerstaretwillingttotpaytmoretfortrosestthat tpasstthroughtAmsterdam.
ANSWER:t b
21. TradetbarrierstliketthetBerlintWall:
a. increased tthetnumbertof tscientiststand tengineers.
b. added tbillionstof tmindsttotthetglobaltdivisiontof tknowledge.
c. decreased tinnovationtand tglobaltcooperation.
d. prevented trestrictivetmonopolistictpractices.
ANSWER:t c
22. Atrocktcarvingtfromtancient tNorwaytdepictsttwotidenticaltpeopletdoingtdifferent tjobstintthetsametboat:tonetusesta
tbow ttothunt twhiletthetothertpaddles.tHow tdoestthistearlytexampletillustratetthetbenefitstof ttrade?
a. Onetprefersttothunt,twhiletthetothertprefersttotpaddletthetboat;tthististantexampletof tdiversetprefer
ences.
b. Onetlearnsttotbetverytgood tat tpaddling,tand tonetlearnsttotbetverytgoodtat thunting;tthististantexampletof tspec
ializationtand tdivisiontof tknowledge.
c. Thetpaddlertiststrongertthantthethunter,tsotthetpaddlertsacrificestatlot tbythunting;tthististantexampletof tco
mparativetadvantage.
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t t t t t t t t t t
Name: Class: Date:
Chaptert2t-tThetPowertof tTradetandtComparativetAdvantage
1. Tradetcreatestvaluetbecause:
a. peopletget twhat ttheytwant.
b. raw tmaterialstarettransformed tintotfinished tproducts.
c. peopletexchangetthingsttheytdotnot twant tfortthingsttheytdo.
d. idletresourcestaretput ttotuse.
ANSWER:t c
2. eBaytcreatestvaluetby:
a. helpingtsellersttricktbuyerstintotpurchasingtbrokentitems.
b. movingtgoodstliketbrokentlasertpointerstfromtpeopletwhotdon't twant tthemttotpeopletwhotdo.
c. helpingtpeopletwithtthetsametpreferencestfind teachtother.
d. movingttoystfromtchildrentwhotwant tthemttotchildrentwhotdon't.
ANSWER:t b
3. David tsellsthistcar,twhichthetconsiderstworthless,ttotCamerontfort$200.tWhichtof tthetfollowingtstatementstistTRU
E?
a. David tand tCamerontmust thavetdifferent tpreferencestfortthetcar.
b. Thisttradetdid tnot tcreatetvaluetbecausetCamerontistbuyingtatcartthat tDavid tconsiderstworthless.
c. Camerontistthetonlytonetmadetbettertoff tbytthettrade.
d. David tistmadetbettertoff tbytthettrade,tbut tCamerontistmadetworsetoff.
ANSWER:t a
4. Marktvaluesthistdrumtset tat t$800,tand tEllatvaluesthertguitartat t$1,000.tSupposetthat tMarkttradesthistdrumtset tfortEll
a'stguitar.
a. ThisttradetmakestEllatworsetoff tbyt$200.
b. ThisttradetmakestMarktbettertoff tbyt$200.
c. Marktmust tvaluetElla'stguitartfortat tleast t$800,tand tEllatmust tvaluetMark'stdrumtset tfortat tleast
$1,000.
d. Thisttradetdecreasesttotaltvaluetbytmovingtthetguitartand tdrumtawaytfromtpeopletwhotplaced tathightvaluet
ontthem.
ANSWER:t c
5. Facilitatorstof ttradet(suchtastPierretOmidyar,tthetdevelopertof teBay):
a. maytbecometverytrichtsincettheytaretcreatingtvaluetfortmanytindividuals.
b. find tit tverythard ttotprofit tfromttheirtservicestsincettheytaretnot tdirectlytinvolved tintthettrades.
c. typicallytprofit tfromttheirtservicestonlytif ttheytaretablettotobtaintgovernment tpatent trights.
d. aretusuallytseentasttakingtadvantagetof tconsumers.
ANSWER:t a
6. Tradetmakestpeopletbettertoff twhen:
a. everyonetwantstthetsametthingstastothertpeople.
b. sometpeopletaretlesstproductivetthantothers.
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Chaptert2t-tThetPowertof tTradetandtComparativetAdvantage
c. peopletcannot tspecializetintcertaintactivities.
d. peoplethavetdifferent tpreferences.
ANSWER:t d
7. Eachtof t100tpeopletreceivestatrandomtitemtfromtatgrocerytstoretand tassignstit tatvaluetbetweent1t(low)tand t10t(hig
h).tTheyttradetthosetitemstamongtthemselvestfortitemsttheytprefertrathertthantthosettheytrandomlytreceived tand tthe
ntassigntatsecond tvaluet(again,t1ttot10)ttotthetitemtthat ttheytend tuptwithtaftertthettradingtconcludes.tHow twould tthet
sumtof tthosetvaluestbeforettradingtcomparetwithtthetsumtafterttrading?
a. Thetvaluetwould tstaytthetsametbecausetnotnew tgoodstweretintroduced.
b. Thetvaluetwould tstaytthetsametbecausetnotonethastatcomparativetadvantage.
c. Afterttrading,tvaluetwould tbetlowertbecausetnotonetcantspecialize.
d. Afterttrading,tvaluetwould tbethighertbecausetpreferencestaretdiverse.
ANSWER:t d
8. Whichtof tthetfollowingtistleast tlikelytatconsequencetof tthetdivisiontof tknowledge?
a. thetdevelopment tof tthetcomputerttablet
b. attotallytself-sufficient tfamilytfarm
c. atnew tdeliverytmethod tfortcancer-fightingtdrugs
d. thetprovisiontof tatnew tbiketpathtintyourtcommunity
ANSWER:t b
9. Onlytatverytsmalltportiontof tpeopletwhotusetmicrowavestknowthowttheytwork.tThististantexampletof:
a. atproductiontpossibilitytfrontier.
b. divisiontof tknowledge.
c. absolutetadvantage.
d. opportunitytcost.
ANSWER:t b
10. Divisiontof tknowledgetreferstto:
a. dividingttaskstintotdifferent tsubtaskstand thavingtonetpersontperformtalltthesetsubtasks.
b. peopletlearningtdifferent ttaskstintwhichttheytspecialize.
c. assigningtonetpersonttotlearntalltthetdifferent twaysttotperformtthetsamettask.
d. limitingtwhat teachtpersontknowstabout tanothertperson.
ANSWER:t b
11. Whichtof tthetfollowingtsituationstwould tlead ttotmoretstarvation?
a. atworld twhereteveryonetgrowsthistorthertowntfood tand ttheretistnottrade
b. atworld twithttradetand tlotstof tspecialization
c. atworld twithtimmensetdivisiontof tknowledge
d. atworld twheretonlytsometpeopletspecializetintfood tand teveryonetelsetproducestsomethingtelse
ANSWER:t a
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t t t t t t t t t t
Name: Class: Date:
Chaptert2t-tThetPowertof tTradetandtComparativetAdvantage
12. Thetmaintreasontspecializationtcantraisetproductivitytistthat:
a. knowledgetinthumantbrainstistlimited.
b. sometpersonsthavetmoretknowledgetthantothers.
c. it tistalwaystgood ttotknowtlesstthantmore.
d. it tistimpossiblettotlearntanythingtwell.
ANSWER:t a
13. Knowledgetincreasest and tspecializationt totaltoutput.
a. education;tdecreases
b. productivity;tincreases
c. perception;tincreases
d. economiestof tscale;tdecreases
ANSWER:t b
14. Economictgrowthtintthetmodernteratistprimarilytduettotthe:
a. increasestintthetnumbertof tpeople.
b. increasestintmoney.
c. definingtof tnationtborders.
d. creationtof tnew tknowledge.
ANSWER:t d
15. Specializationtand ttradetcant thetpertunit tcost tof tproductiontbecauset .
a. decrease;tit tallowstfortmoretsmall-scaletproduction
b. decrease;tit tcreatesteconomiestof tscaletassociated twithtlarge-scaletproduction
c. increase;tit trequirestmoretexpensive,tspecialized tequipment
d. increase;tmoretexpensivetlabortistneeded
ANSWER:t b
16. ThetUnited tStatestand tthetEuropeantUniontaretgroupstof tsemi-
independent tstatestthat thavetcomettogethertundertantagreement twherebytresourcestcanttraveltfreelytacrosstborderstan
d tatcommontcurrencytistintuse.tWhichtof tthetfollowingtstatementstbest texplainsthow tthistallowstfortthetachievement to
f teconomiestof tscale?
a. Eachtstatetortcountrytcantnowttarget tlargertmarketstand tcantthustearntmoretexport trevenue.
b. Statestand tcountriestnotlongerthavettotworrytabout tborderstimpedingttrade.
c. Eachtstatetortcountrytcantadopt tlarge-
scaletproductionttechniquestthat tallow tlowertpertunit tcoststof tproduction.
d. Thetremovaltof ttradetborderstand tatcommontcurrencytenhancesttradetbetweentmembertstates.
ANSWER:t c
17. Onetof tthetoutcomestof tspecializationtistthat tit tleadsttot ,twhicht thetaveragetcost tof tproduction.
a. smaller-scaletproduction;tlowers
b. smaller-scaletproduction;traises
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Chaptert2t-tThetPowertof tTradetandtComparativetAdvantage
c. larger-scaletproduction;traises
d. larger-scaletproduction;tlowers
ANSWER:t d
18. If teachtof tusthad ttotgrow talltof tourtowntfood:
a. civilizationtwould tcollapsetand tbillionstof tpeopletwould tstarve.
b. wetwould thavetmorettimetfortothertpursuits.
c. peopletwould tbetricher,tsincettheytwould tnotlongerthavettotspend tmoneytontgroceries.
d. thettotaltamount tof tknowledgetintsocietytwould tincrease,tsinceteveryonetwould thavettotlearntabout tfarm
ing.
ANSWER:t a
19. If tinstead tof tspecialized tdoctorst(neurologists,tcardiologists,tgastroenterologists,tetc.)twethad tdoctorstwhoteac
htknew tthetsametthingstabout talltaspectstof tmedicine,tit twould tbe:
a. bettertbecausetthentwetcould tjust tgottotonetdoctortwithtnotlosstof tqualitytintmedicaltcare.
b. bettertbecausettotaltmedicaltknowledgetintsocietytwould tincrease.
c. worsetbecausetthethumantbraintistlimited.
d. worsetbecausettotaltmedicaltknowledgetintsocietytwould tdecrease.
ANSWER:t d
20. RosestgrowntintKenyattravelttotAmsterdamtand tultimatelyttotyourtlocaltflowertshoptbecause:
a. thetWorld tRosetCommissiontcoordinatestthetdifferent telementstof tthetrosetindustry.
b. marketstcoordinatetthetspecializationtand ttradetnecessarytfortthetflowertindustryttotfunction.
c. of tthettradetagreement tbetweentthetgovernmentstof tKenyatand tAmsterdam.
d. customerstaretwillingttotpaytmoretfortrosestthat tpasstthroughtAmsterdam.
ANSWER:t b
21. TradetbarrierstliketthetBerlintWall:
a. increased tthetnumbertof tscientiststand tengineers.
b. added tbillionstof tmindsttotthetglobaltdivisiontof tknowledge.
c. decreased tinnovationtand tglobaltcooperation.
d. prevented trestrictivetmonopolistictpractices.
ANSWER:t c
22. Atrocktcarvingtfromtancient tNorwaytdepictsttwotidenticaltpeopletdoingtdifferent tjobstintthetsametboat:tonetusesta
tbow ttothunt twhiletthetothertpaddles.tHow tdoestthistearlytexampletillustratetthetbenefitstof ttrade?
a. Onetprefersttothunt,twhiletthetothertprefersttotpaddletthetboat;tthististantexampletof tdiversetprefer
ences.
b. Onetlearnsttotbetverytgood tat tpaddling,tand tonetlearnsttotbetverytgoodtat thunting;tthististantexampletof tspec
ializationtand tdivisiontof tknowledge.
c. Thetpaddlertiststrongertthantthethunter,tsotthetpaddlertsacrificestatlot tbythunting;tthististantexampletof tco
mparativetadvantage.
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