Assume that Greece has a comparative advantage in fish and Germany has a comparative advantage in cars. Also assume that Germany has an absolute advantage in both fish and cars. If these two countries specialize and trade so as to maximize the benefits of specialization and trade, then |a. |the two countries’ combined output of both goods will be higher than it would be in the absence of trade. | |b. |Greece will produce more fish than it would produce in the absence of trade. |c. |Germany will produce more cars than it would produce in the absence of trade. | |d. |All of the above are correct.

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Refer to Figure 3-4. If Perry and Jordan both spend all of their time writing poems, then total production is |a. |3 poems. | |b. |6 poems. | |c. |12 poems. | |d. |24 poems. | Figure 3-7 |Bintu’s Production Possibilities Frontier |Juba’s Production Possibilities Frontier | [pic][pic] ____6. Refer to Figure 3-7. Bintu has a comparative advantage in the production of |a. |bowls and Juba has a comparative advantage in the production of cups. | |b. |cups and Juba has a comparative advantage in the production of bowls. | |c. both goods and Juba has a comparative advantage in the production of neither good. | |d. |neither good and Juba has a comparative advantage in the production of both goods. | ____7. If the Japanese steel industry subsidizes the steel that it sells to the United States, the |a. |United States should protect its domestic steel industry from this unfair competition. | |b. |harm done to U. S. steel producers from this unfair competition exceeds the gain to U. S. consumers of cheap Japanese | | |steel. | |c. |harm done to U. S. steel producers is less than the benefit that accrues to U.S. consumers of steel.

United States should subsidize the products it sells to Japan. | ____8. You and your friend work together for 4 hours to produce a total of 12 futons. What is productivity? |a. |12 futons | |b. |24 futons | |c.

Page 2 Economics and Comparative Advantage Essay

|3 futons per hour of labor | |d. |1. 5 futons per hour of labor | ___9. Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has more capital per worker and so it has more real GDP per worker than the other. Finally, suppose that the saving rate in both countries increases from 4 percent to 7 percent. Over the next ten years we would expect that |a. |the growth rate will not change in either country. | |b. |the country that started with less capital per worker will grow faster. | |c. |the country that started with more capital per worker will grow faster. | |d. both countries will grow and at the same rate. | ____10. Which of the following is correct? |a. |If developing countries limit career and educational opportunities for women, birth rates are likely to be lower. | |b. |Growth rates in developed and developing countries are nearly the same. | |c. |Historically, in periods where the rate of population growth was high, so was the rate of growth in world real GDP per | | |person. | |d. |None of the above is correct. | ____11. Senator Noitall says that in order to help poor countries develop, the United States should: 1.

Prevent U. S. corporations from investing in poor countries because they take profits that the poor countries should have; 2. Not import goods from poor countries that use child labor; 3. Work to promote political stability in poor countries; and 4. Reduce poor countries’ reliance on market forces in their economies. How many of these ideas are likely to help poor countries grow? |a. |1 | |b. |2 | |c. 3 | |d. |4 | ____12. Country A and country B are the same except country A currently has a lower level of capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then |a. |output in country A increases by more than in country B. | |b. |output in country A increases by the same amount as in country B. | |c. output in country A increases by less than in country B. | |d. |None of the above is necessarily correct.

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