Name:_____________________________________________
Economics Quiz – Chapter 4 Review Sheet
1. What is specialization? What are the benefits of specialization? What is its impact
on trade?
Become an expert (or more efficient) in one particular field or area.
Benefits included improved efficiency, decreased cost, improved quality of output
Allows for areas to specialize on a particular product, maximize their output, and then trade
with others that are doing the same thing with other products.
2. How does specialization lead to economic interdependence? Come up with your
own example.
Specialization means that you only produce one good or service, so you are unable to do all the
other things that are necessary for survival. This means that you must trade in order to get what
you need if you are specializing.
3. What’s the difference between specialization and division of labor?
Specialization is the developing of skills to become more proficient at one thing. Division of
labor is the decision of how to divide up the tasks in order to allow for specialization.
4. What is voluntary exchange? What role does money play in this exchange?
Willingly trading one item/service for something else of value (often involving the use of
money as a medium of exchange)
5. How does voluntary exchange relate to “coincidence of wants”?
A coincidence of wants is often found in barter economies where specific products are traded.
In a market economy, voluntary exchanges involve the use of money to allow both sides to get
what they want.
6. What is a “barter system”?
Specific products are traded for other specific products (no money is used in the exchange).
7. What are some examples of trade barriers? How do they specifically impede trade?
Tariffs – a fee placed on imported goods to drive up their price (hopefully to allow
8. Define absolute advantage. What gives you an absolute advantage over someone
else?
When someone can produce more of a good or service using fewer resources or in less time
When you can produce more than someone than else with all other things remaining equal
9. Define comparative advantage. What gives you a comparative advantage over
someone else?
When you can produce something at a lower opportunity cost than someone else
When you can produce something more cheaply per item, even if the other person can produce
more
10.What are some ways that individuals or nations gain a comparative advantage? (ex:
Why does Hawaii make pineapples and Idaho make potatoes? Why are
technological industries in the U.S. and lower-skilled jobs in other nations?)
Regions may have a comparative advantage based on the geographical condition of their land.
Hawaii can make pineapples at a lower opportunity cost than other areas because the conditions
of the land make it easier. It costs other nations less to complete assembly-line production
when the work-force is less skilled so they have a comparative advantage in that process.
11.How does trade increase the value of a good? Give an example.
Trade increases the value of a good because it gets products to those who want them most.
Value is determined by each individual, so when a good is in the hands of the individual who
wants it most its value has increased.
12.In the following scenario…
Apples Oranges
Bobby
15
30
Susie
20
60
a. Who has the absolute advantage? Susie, in both apples and oranges
b. Who has the comparative advantage? Apples: Bobby, Oranges: Susie
c. What are the opportunity costs for each person?
i. Apples: Bobby (1 apple for 2 oranges compared to 1A for 3 O)
ii. Oranges: Susie (1 orange for 1/3 apple compared to 1 A for ½ O)