Chapter 3 — Quiz

Multiple choice

Q1. Absolute advantage refers to: a) The producer with the lower opportunity cost b) The producer who can produce more output with the same resources c) The producer who has more workers d) The producer who is the only one who can produce a good

Q2. Comparative advantage refers to: a) The producer who is better at everything b) The producer with the lower opportunity cost in a particular good c) The producer with the lowest wages d) The producer with the most experience

Q3. A doctor who is also a faster cleaner than her cleaner still hires the cleaner because: a) The doctor has an absolute advantage in cleaning b) The doctor has a comparative advantage in medicine, and the cleaner has a comparative advantage in cleaning c) Cleaning is below the doctor's professional dignity d) The doctor wants to support local employment

Q4. "Whenever opportunity costs differ between two producers, both can gain from trade." This statement is: a) True only when there is no transportation cost b) True only when both are equally productive c) Generally true — the foundation of the gains-from-trade result d) False — only the more productive party gains

Q5. A producer can have an absolute advantage in both goods. Can the same producer have a comparative advantage in both goods? a) Yes, if she's better enough at both b) Yes, if her opportunity cost is lower in both c) No — it's mathematically impossible d) Sometimes, depending on the trading ratio

Q6. Adam Smith's pin factory example illustrates: a) Comparative advantage at the international level b) The division of labor and how specialization increases productivity c) Why factories should be small d) Why pins are an inelastic good

Q7. The trading ratio that benefits both parties must lie: a) Above both parties' opportunity costs b) Below both parties' opportunity costs c) Strictly between the two parties' opportunity costs d) Exactly at one party's opportunity cost

Q8. When two countries trade based on comparative advantage, total output: a) Always falls b) Stays the same c) Rises (often substantially) d) Depends on the political climate

Q9. "Free trade has uneven distributional effects." This claim is: a) Inconsistent with comparative advantage b) Consistent with comparative advantage; the framework predicts both total gains and uneven distribution c) A normative claim d) Both b and c

Q10. David Ricardo's contribution (1817) to economics was: a) The labor theory of value b) The principle of comparative advantage c) The marginal revolution d) The quantity theory of money

Short answer

SA1. Define comparative advantage in one sentence.

SA2. Anna can produce 8 cookies or 4 cakes in an hour. Ben can produce 4 cookies or 4 cakes in an hour. Who has an absolute advantage in each good? Who has a comparative advantage in each good?

SA3. Why does a country with an absolute advantage in everything still benefit from trading with a less-productive country?

SA4. Give one example from your own life where you specialize in something you're not the absolute best at, but it's still the right thing for you to do.

SA5. Briefly explain why "trade is good in total" can be true at the same time as "some workers are hurt by trade."

True / False

TF1. Comparative advantage and absolute advantage are the same thing. (True / False)

TF2. It is mathematically impossible for one party to have a comparative advantage in every good. (True / False)

TF3. Adam Smith published The Wealth of Nations before David Ricardo published Principles of Political Economy and Taxation. (True / False)

TF4. The size of the gains from trade is unrelated to how different the two parties' opportunity costs are. (True / False)

TF5. When two parties trade based on comparative advantage, both must end up with more of every good than before. (True / False)

Selected answers in appendices/answers-to-selected.md.