Comparative and Absolute
Advantages
Question 1
In one hour, Robinson Crusoe can either catch 7 fish or collect
3 coconuts, and his companion Friday can either catch 8 fish or
collect 4 coconuts. What does the law of comparative
advantage imply about specialization in this case?
•
a) Friday should do all the work.
b) Crusoe should catch fish, and Friday should
collect coconuts.
c) Crusoe should collect coconuts, and Friday
should catch fish.
d) Crusoe should trade, but Friday should refuse.
e) Crusoe should work extra hard so that he will
not exploit Friday.
Question 2
From an economic-efficiency point of
view, the basic problem with tariffs
and quotas is that they cause:
a) the world as a whole to be inside its productionpossibilities frontier, though each nation individually
may be on its frontier.
b) the world as a whole to be inside its productionpossibilities frontier because each nation will be
inside its national production frontier.
c) the rich to get too much relative to the poor.
d) too much of the protected goods to be produced
worldwide and too little of the unprotected goods to
be produced.
Question 3
The idea of comparative advantage is
based on:
a)
b)
c)
d)
game theory.
opportunity cost.
tax incidence.
property rights.
Question 4
Crusoe can either gather three coconuts a day or catch six fish.
Friday can either gather six coconuts a day or catch six fish.
Which of the following positions will be below their combined
production-possibilities frontier
a)
b)
c)
d)
Nine coconuts and zero fish.
Twelve fish and zero coconuts.
Three coconuts and six fish.
All of the above are inside.
Question 5
•
Robinson has the following production-possibilities frontier:
Oranges
3
2
1
0
•
a)
b)
c)
d)
Clams
0
4
7
9
If he is producing two oranges, what is his opportunity cost of the third orange?
Two clams
Three clams
Four clams
There is no cost unless he is using money.
Question 6
• . With specialization and exchange:
a) the rich get richer and the poor get poorer.
b) the poor get richer and the rich get poorer.
c) people can move their consumptionpossibilities frontier beyond their productionpossibilities frontier.
d) people can move their production-possibilities
frontier beyond their consumption-possibilities
frontier
Question 7
• Which explanation of a quota on foreign products would make the
most sense to an economist?
a)
b)
c)
d)
The quota is a useful way to raise government revenue, and
because governments always can spend more, quotas are
common.
Quotas protect consumers from unfair competition, and the
government establishes them as part of consumer protection.
Quotas harm consumers but help producers, and they can exist
when producers have more political clout than consumers.
Quotas make no sense to economists and they have no
explanation of why they exist