ECON 340 EXAM 1 QUESTIONS AND VERIFIED
ANSWERS
Which of the following is not a reason why countries trade goods with each other?
A) Foreign businesses can produce a product at lower cost or higher quality than
domestic businesses
B) Some products are characterized by variety diferences, and some consumers prefer
foreign varieties
C) Some industries are dominated by a handful of firms that battle each other for market
share in all corners of the globe
D) Countries differ from languages and cultures - Answers - D
If the opportunity cost is constant (i.e., the PPF is a straight line), then a country will:
A) Partially specialize in the production of the exportable product.
B) Completely specialize in the production of the exportable product.
C) Not benefit from importing goods from another country.
D) Benefit by raising trade barriers. - Answers - B
Whenever a nation has a lower opportunity cost of producing a good in relative terms,
that nation is said to have:
A) An absolute advantage in that good.
B) A comparative advantage in that good.
C) A competitive advantage in that good. D) Better technology to produce that good. -
Answers - B
4. When a nation is in autarky (i.e., no-trade) and maximizes its utility, its consumption
and pro- duction points are:
A) Along its production possibilities frontier.
B) Above its production possibilities frontier.
C) Beneath production possibilities frontier.
D) Along, above, or beneath its production possibilities frontier. - Answers - A
Assume that a Spartan worker can produce either 5 tennis rackets or 4 baseball bats. If
the economy has 100 workers, then the economy can produce:
A) A maximum of 500 tennis rackets.
B) Either 20 tennis rackets or 25 baseball bats only.
C) 500 tennis rackets and 400 baseball bats.
D) Insufficient information is given to answer this question. - Answers - A
Assume that a Wolverin worker can produce either 2 cars or 5 boats. There are 150
workers in this hypothetical economy; the slope of the PPF for this economy (with the
output of boats on the horizontal axis and the output of cars on the vertical axis) is:
A) 2/5
, B) -5/2 C) -2/5 D) 5/2 - Answers - C
In an imaginary world, there are two countries, MSU and U of M. In country MSU, one
worker can produce 2 burgers or 1 candle. In country U of M, one worker can produce 1
burger or 2 candles. In each country, there are two identical workers, respectively.
7. The slope of the PPF for country MSU with the output of candles on the horizontal
axis and the output of burgers on the vertical axis is:
A) 1/2
B) -1/2
C) -2 D) 2 - Answers - C
In an imaginary world, there are two countries, MSU and U of M. In country MSU, one
worker can produce 2 burgers or 1 candle. In country U of M, one worker can produce 1
burger or 2 candles. In each country, there are two identical workers, respectively.
Suppose that the two countries are engaged in trade. In the world market, the price of a
burger, PB, is $2 and the price of a candle, PC, is $2.
Spartan workers should specialize in producing: A) Burgers.
B) Candles.
C) Both burgers and candles.
D) Neither burgers nor candles. - Answers - A
Suppose that labor is the only input used in making t-shirts. Suppose that the U.S. wage
is $30 and the China wage is $3. Further suppose that each American worker can
produce 30 shirts per hour, while each Chinese worker can produce 6 shirts per hour.
What are the dollar costs of producing a shirt in the U.S. and in China?
A) $0.5 in U.S and $0.5 in China B) $1.0 in U.S and $1.0 in China C) $0.5 in U.S and
$1.0 in China D) $1.0 in U.S and $0.5 in China - Answers - D
22. Suppose that the U.S. wage is $30. But there is no information about the China
worker's wage. What is the highest possible China wage consistent with China being
competitive in the production of t-shirts?
A) $2
B) $3 C) $6 D) $9 - Answers - C
3. Suppose that labor is the only input used in making pocket calculators. Suppose that
the U.S. wage is $30 and the China wage is $3. Further suppose that each American
worker can produce 0.75 calculators per hour, while each China worker can produce
0.05 calculators per hour. What are the dollar costs of producing a calculator in the U.S.
and in China?
5
A) $22.5 in U.S and $0.15 in China B) $40.0 in U.S and $15.0 in China C) $40.0 in U.S
and $60.0 in China D) $22.5 in U.S and $60.0 in China - Answers - C
24. Suppose that the U.S. wage is $30. What is the lowest possible China wage
consistent with the U.S. being competitive in the production of calculators?
A) $2
ANSWERS
Which of the following is not a reason why countries trade goods with each other?
A) Foreign businesses can produce a product at lower cost or higher quality than
domestic businesses
B) Some products are characterized by variety diferences, and some consumers prefer
foreign varieties
C) Some industries are dominated by a handful of firms that battle each other for market
share in all corners of the globe
D) Countries differ from languages and cultures - Answers - D
If the opportunity cost is constant (i.e., the PPF is a straight line), then a country will:
A) Partially specialize in the production of the exportable product.
B) Completely specialize in the production of the exportable product.
C) Not benefit from importing goods from another country.
D) Benefit by raising trade barriers. - Answers - B
Whenever a nation has a lower opportunity cost of producing a good in relative terms,
that nation is said to have:
A) An absolute advantage in that good.
B) A comparative advantage in that good.
C) A competitive advantage in that good. D) Better technology to produce that good. -
Answers - B
4. When a nation is in autarky (i.e., no-trade) and maximizes its utility, its consumption
and pro- duction points are:
A) Along its production possibilities frontier.
B) Above its production possibilities frontier.
C) Beneath production possibilities frontier.
D) Along, above, or beneath its production possibilities frontier. - Answers - A
Assume that a Spartan worker can produce either 5 tennis rackets or 4 baseball bats. If
the economy has 100 workers, then the economy can produce:
A) A maximum of 500 tennis rackets.
B) Either 20 tennis rackets or 25 baseball bats only.
C) 500 tennis rackets and 400 baseball bats.
D) Insufficient information is given to answer this question. - Answers - A
Assume that a Wolverin worker can produce either 2 cars or 5 boats. There are 150
workers in this hypothetical economy; the slope of the PPF for this economy (with the
output of boats on the horizontal axis and the output of cars on the vertical axis) is:
A) 2/5
, B) -5/2 C) -2/5 D) 5/2 - Answers - C
In an imaginary world, there are two countries, MSU and U of M. In country MSU, one
worker can produce 2 burgers or 1 candle. In country U of M, one worker can produce 1
burger or 2 candles. In each country, there are two identical workers, respectively.
7. The slope of the PPF for country MSU with the output of candles on the horizontal
axis and the output of burgers on the vertical axis is:
A) 1/2
B) -1/2
C) -2 D) 2 - Answers - C
In an imaginary world, there are two countries, MSU and U of M. In country MSU, one
worker can produce 2 burgers or 1 candle. In country U of M, one worker can produce 1
burger or 2 candles. In each country, there are two identical workers, respectively.
Suppose that the two countries are engaged in trade. In the world market, the price of a
burger, PB, is $2 and the price of a candle, PC, is $2.
Spartan workers should specialize in producing: A) Burgers.
B) Candles.
C) Both burgers and candles.
D) Neither burgers nor candles. - Answers - A
Suppose that labor is the only input used in making t-shirts. Suppose that the U.S. wage
is $30 and the China wage is $3. Further suppose that each American worker can
produce 30 shirts per hour, while each Chinese worker can produce 6 shirts per hour.
What are the dollar costs of producing a shirt in the U.S. and in China?
A) $0.5 in U.S and $0.5 in China B) $1.0 in U.S and $1.0 in China C) $0.5 in U.S and
$1.0 in China D) $1.0 in U.S and $0.5 in China - Answers - D
22. Suppose that the U.S. wage is $30. But there is no information about the China
worker's wage. What is the highest possible China wage consistent with China being
competitive in the production of t-shirts?
A) $2
B) $3 C) $6 D) $9 - Answers - C
3. Suppose that labor is the only input used in making pocket calculators. Suppose that
the U.S. wage is $30 and the China wage is $3. Further suppose that each American
worker can produce 0.75 calculators per hour, while each China worker can produce
0.05 calculators per hour. What are the dollar costs of producing a calculator in the U.S.
and in China?
5
A) $22.5 in U.S and $0.15 in China B) $40.0 in U.S and $15.0 in China C) $40.0 in U.S
and $60.0 in China D) $22.5 in U.S and $60.0 in China - Answers - C
24. Suppose that the U.S. wage is $30. What is the lowest possible China wage
consistent with the U.S. being competitive in the production of calculators?
A) $2
