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Econ 200 PRACTICE Chapter 7 Miller
Student: ___________________________________________________________________________
1. While absolute advantage is determined by the quantities of various goods that can be produced compared to
other countries, comparative advantage is determined by:
A. The trade balance between two countries
B. The opportunity costs of the various goods that can be produced, compared to other countries
C. The comparative levels of wealth between the two countries
D. The comparative exchange rates between the two countries
For a long time, the nation of Pulasan banned the importation of meat. Suppose the government lifts this trade
restriction. Figure: 7-3 shows the domestic demand and supply curves for the meat market.
Figure: 7-3
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2. Suppose that cattle farmers in Pulasan successfully pressure the government to impose a tariff of $1.50 per
pound on imported meat. Compared to free trade, the tariff imposes a deadweight loss equal to the area:
A. E + H
B. I + J + F + G
C. I + J
D. F + G
3. If the world price is $3 per pound, what is the quantity produced by domestic meat producers?
A. 2 million pounds
B. 2.2 million pounds
C. 5 million pounds
D. 7.2 million pounds
Table: 7-1 shows the amount of refrigerators and auto parts produced in two hypothetical countries, Unviere
and Kalor, if each country devotes all its labor to producing one good or the other. To keep things simple,
assume that goods are made only with labor, the two countries have the same number of workers and all
workers work the same number of hours per period.
Table: 7-1
4. Which country is more productive in manufacturing auto parts?
A. Unviere
B. Kalor
C. They are equally productive
D. Cannot be determined
5. In Kalor, what is the opportunity cost of producing one auto part?
A. 9,000 refrigerators
B. 3,000 refrigerators
C. 3 refrigerators
D. 1/3 of a refrigerator
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6. A nation has an absolute advantage in producing a good:
A. If it can make the good using fewer resources than its trading partners
B. If it can produce that good at a lower opportunity cost than its trading partners
C. If it has a lower cost of living than its trading partners
D. If it is willing to pay a higher price for a good than its trading partners
7. Tariffs and quotas differ in that:
A. Tariffs help producers but harm consumers while quotas help consumers but harm producers
B. Quotas help producers but harm consumers while tariffs help consumers but harm producers
C. Tariffs generate revenue for the domestic government while quotas generate additional revenue for exporters,
but not for the domestic government
D. Quotas generate revenue for the government, while tariffs generate additional revenue for domestic
producers but not for the domestic government
Figure: 7-1 shows the domestic demand and supply curves for scrap steel in Doritland.
Figure: 7-1
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8. The world price is $560 per ton. Which of the following statements is true if Doritland trades with the rest of
the world?
A. The price of scrap steel must fall to $420 in Doritland to eliminate the surplus in the domestic market
B. The domestic price of scrap steel will be $560 and domestic producers will export 3.5 tons of scrap steel
C. In the domestic market, 4 tons of steel will be traded at a price of $420 and in the export market, 1.5 tons of
scrap steel will be traded at a price of $560
D. Since the price of scrap steel is higher in the export market, producers export the entire 5.5 tons of scrap steel
and will not sell in the domestic market
9. Which of the following statements is true?
A. Free trade benefits consumers but hurts producers
B. Free trade benefits producers but hurts consumers
C. Free trade hurts middle income workers more than high income workers
D. Free trade could increase the unemployment rate in a country in the short run but over time, new jobs will be
created that benefits the nation as a whole
10. Suppose in a given period, a worker in China can produce either 100 pairs of shoes or 150 hats and a worker
in India can produce either 200 pairs of shoes or 100 hats. What is the opportunity cost of producing 1 hat in
India?
A. 1/2 of a pair of shoes
B. 2/3 of a pair of shoes
C. 1-1/2 pairs of shoes
D. 2 pairs of shoes
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For a long time, the nation of Isolandia had no contact with the rest of the world. Then an explorer arrived from
another nation and informed the Isolandians that their traditional ceramic vases, sold for $80 in Isolandia, would
sell for a price of $130 in the rest of the world. Figure: 7-5 shows the domestic demand and supply curves for
traditional vases.
Figure: 7-5
11. If trade is opened with the rest of the world, the number of vases consumed by Isolandians would:
A. Increase by 300
B. Increase by 160
C. Increase by 140
D. Decrease
12. Suppose the country of Industria can produce construction equipment and textiles. It develops new
technology and greater worker skill that makes Industria much more productive in the construction-equipment
industry. Which of the following is now likely to happen as a result?
A. Industria exports less construction equipment
B. Industria produces fewer textiles
C. The economies of other nations are permanently harmed from increased competition
D. Industria suffers as a whole because workers are replaced with technology and machinery
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Figure: 7-4 shows the domestic demand and supply curves for the cotton market.
Figure: 7-4
13. Suppose that cotton farmers wield a great deal of political influence and successfully pressure the
government to restrict the importation of cotton to 35,000 bales. What happens to the price of cotton and what is
the amount of cotton purchased in the domestic market?
A. Price = $7; Quantity purchased = 40,000 bales
B. Price = $5.50; Quantity purchased = 55,000 bales
C. Price = $5.50; Quantity purchased = 35,000 bales
D. Price = $7; Quantity purchased = 35,000 bales
14. If the world price is $4 per bale, what is the quantity of cotton imported?
A. 70,000 bales
B. 30,000 bales
C. 58,000 bales
D. 28,000 bales
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Workers in the United States and Brazil can produce shoes and computers. The annual output of a worker in
each country is given in Table: 7-3.
Table: 7-3
15. What can you conclude about the pattern of trade?
A. Brazil has an absolute advantage in shoes and a comparative advantage in computers
B. The United States has an absolute advantage in computers and a comparative advantage in shoes
C. Brazil has an absolute advantage in shoes but the United States has a comparative advantage in shoes
D. The United States has an absolute advantage and a comparative advantage in computers
16. Which of the following is not a source of comparative advantage?
A. Natural resource endowments. For example, the soil and climate of Malaysia are well suited for palm oil
cultivation
B. Literacy and education standards. For example, Kerala, India has one of the highest literacy rates in the
world and a significant number of its citizens are very well educated in the sciences
C. Past work experience. For example, Rajesh graduated from college with a degree in education and began
substitute teaching. To supplement her income, she also started working part-time selling insurance, a job that
helped her develop sales and interpersonal communications skills. In her second year, she was nominated "Top
Saleswoman of the Year". Later, she quit her teaching job to concentrate on insurance sales
D. Constraints of freedom. For example, a country in which people are assigned an occupation and barred from
certain types of work will encourage natural talents in individuals
17. If the government imposes a quota of 35,000 bales, how does it affect domestic producers in terms of price
and output? (see Figure 7.4)
A. They produce 8,000 bales more and sell at a higher price of $5.50
B. They produce 28,000 bales more and sell at a higher price of $7
C. They produce 43,000 bales more and sell at a higher price of $5.50
D. They produce 35,000 bales more and continue to sell at the world price of $4
18. Children who work in factories in developing nations are likely to be made better off by:
A. Boycotting the products of particular companies that employ children
B. Setting up trade barriers between wealthy nations and those nations that use child labor
C. Lobbying for international restrictions on child labor
D. Buying the products they make
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19. Suppose Megan and Brian decide to open a restaurant. They produce units of table-waiting services (W) and
units of cooking services (C). Megan can produce 30W or 45C. Brian can produce 15W or 30C. Which of the
following is NOT true?
A. Megan has a comparative advantage in producing W
B. Brian has a comparative advantage in producing C
C. Megan has an absolute advantage in producing C and W
D. Brian has an absolute advantage in producing C and W
20. Suppose Megan and Brian decide to open a restaurant. They produce units of table-waiting services (W) and
units of cooking services (C). Megan can produce 30W or 45C. Brian can produce 15W or 30C. Before
specializing in their areas of comparative advantage, Megan is producing 20W and 15C and Brian is producing
10W and 10C. Each then begins producing only that service in which he or she has a comparative advantage.
How much more of W and/or C will be produced?
A. There will be no more W produced and 5 more C produced
B. There will be no more W produced and 15 more C produced
C. There will be 15 more W produced and 35 more C produced
D. There will be no more W or C produced
21. In Kalor, what is the opportunity cost of producing a refrigerator? (see Table 7.1)
A. 9,000 auto parts
B. 3,000 auto parts
C. 3 auto parts
D. 1/3 unit of an auto part
22. Suppose that cattle farmers in Pulasan successfully pressure the government to impose a tariff of $1.50 per
pound on imported meat. What is the area that represents the tariff revenue collected by the government? (see
Figure 7.3)
A. E + F + G + H + I + J
B. I + J + F + G
C. I + J
D. F + G
23. Which of the following statements is false?
A. A country that has an absolute advantage in nothing can still gain from trade
B. A country cannot have a comparative advantage in a good if it does not also have an absolute advantage in
the good
C. A country cannot have a comparative advantage in every good produced
D. A country may have an absolute advantage in more than one good
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24. If Sarawak can produce pineapples at a lower opportunity cost than Ducane, then:
A. Ducane could have a comparative advantage, but Sarawak definitely has an absolute advantage in pineapple
production
B. Sarawak has an absolute and a comparative advantage in pineapple production
C. Sarawak has an absolute advantage in pineapple production
D. Sarawak has a comparative advantage in pineapple production
25. Suppose that cattle farmers in Pulasan successfully pressure the government to impose a tariff of $1.50 per
pound on imported meat. Compared to free trade, the tariff reduces consumer surplus by an area equal to: (see
Figure 7.3)
A. B + C
B. B + I + J
C. E + F + G + H + I + J
D. C + E + F + G + H
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EWU – ECON 200 - Introduction to Microeconomics - Briand
PRACTICE QUESTIONS: Chapter 7 (Miller)
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