Chap37 review
Student: ___________________________________________________________________________
1. The slopes of the production possibilities curves for two nations reflect the: 
A) Relative prices of the resources in the two nations
B) Amounts of imports and exports of the two nations
C) Average income levels in the two nations
D) Opportunity costs of production in the two nations
 
2. The ratio at which nations will exchange one product for another is known as the: 
A) Exchange rate
B) Discount rate
C) Terms of trade
D) Balance of trade
 
3. Specialization and trade between individuals or between nations lead to: 
A) Greater self-sufficiency
B) Higher product prices
C) Lower living standards
D) Higher total output
 
4. The benefits to trading nations based on comparative advantage accrue from: 
A) Specialization only
B) Specialization and trading
C) Trading only
D) Protection of domestic industries
 
5. Nation Statum can produce either 800 units of chemicals or 1,600 units of clothing. Nation Timin can produce either 200 units of chemicals or 800 units of clothing 
A) Nation Statum has a comparative advantage in producing clothing
B) Nation Timin has a comparative advantage in producing chemicals
C) Nation Statum has a comparative advantage in producing chemicals
D) Nation Timin is the high-cost producer of clothing
 
6. The production possibilities for country X are either 6,000 bushels of soybeans or 10,000 bushels of wheat. The production possibilities for country Y are either 2,000 bushels of soybeans or 4,000 bushels of wheat. Which of the following is true? 
A) Country Y should specialize in the growing of soybeans according to the principle of comparative advantage
B) Country X is the least cost producer of wheat
C) The domestic opportunity cost of wheat production is lower in country Y
D) The high cost producer of soybeans is country X
 
7. Countries A and B produce only rubber bands and paper clips under the production possibilities schedules shown below:

In country A the opportunity cost of 1 paper clip is: 
A) 2 rubber bands
B) 1 rubber band
C) 1/2 rubber band
D) 1/4 rubber band
 
8. Given the following production possibilities schedules, it can be deduced that:

A) France has a comparative advantage in producing wine
B) Germany has a comparative disadvantage in producing wine
C) France has a comparative advantage in producing machines
D) Germany can produce machines at a lower opportunity cost than France
 
9. Given the following production alternatives for Brazil and Poland, it can be seen that if the two nations open up trade with each other, then:

A) Brazil will specialize in producing machines, and import wine
B) Poland will specialize in producing machines, and import wine
C) Poland will export wine
D) Brazil will not gain from specializing and trading, but Poland will gain
 
10. The table below shows labor-productivity figures in two countries facing constant costs. Based on the data provided, it can be deduced that:

A) Country A can produce more meat than country B
B) Country A has a comparative advantage in producing meat
C) Country B can produce fewer houses than country A
D) Country A has a comparative advantage in producing houses and meat
 
11. The production possibilities table given below shows how many bushels of either wheat or rice can be produced in India and Canada with 1 unit of input. To achieve gains from specialization:

A) India should export rice to Canada and import Canadian wheat
B) India should export wheat to Canada and import Canadian rice
C) Canada should produce both wheat and rice and not trade with India
D) India cannot offer any benefits to Canada from trading with her

 
 Suppose the world economy is composed of just two countries: Italy and Greece. Each can produce steel or chemicals, but at different levels of economic efficiency. The production possibilities curves for the two countries are shown in the graphs below

 
 Answer the question based on the data provided in the tables below for two hypothetical nations, Wat and Xat. The nations have the production possibilities for rice and corn given in the following table:

 
12. Refer to the above data. Which of the following statements is true? 
A) For Xat, the cost of 500 units of corn is 100 units of rice
B) For Xat, the cost of 500 units of rice is 100 units of corn
C) For Wat, the cost of 150 units of rice is 100 units of corn
D) For Wat, the cost of 50 units of corn is 100 units of rice
 
13. Refer to the above graphs and information. It can be deduced that: 
A) Greece has a comparative advantage in chemicals
B) Greece has the absolute advantage in both products
C) Italy has a comparative advantage in chemicals
D) It is more costly in terms of resources to produce steel in Italy
 
14. Refer to the above graphs and information. If Italy and Greece should open up trade with each other, which of the following terms of trade is mutually beneficial? 
A) 1 ton of chemicals = 1 ton of steel
B) 2 tons of chemicals = 1 ton of steel
C) 5 tons of chemicals = 2 tons of steel
D) 9 tons of chemicals = 5 tons of steel
 
 Autos and chemicals are in million units in the following tables:

 
15. The data in the above tables suggest that production in: 
A) Germany is subject to increasing opportunity costs and the United States to constant opportunity costs
B) The United States is subject to increasing opportunity costs and Germany to constant opportunity costs
C) Both Germany and the United States are subject to constant opportunity costs
D) Both Germany and the United States are subject to increasing opportunity costs
 
16. Refer to the above tables. If Germany and the United States engage in trade, the mutually- beneficial terms of trade will be between: 
A) 3 and 4 units of autos for 1 unit of chemicals
B) 2 and 4 units of autos for 1 unit of chemicals
C) 2 and 4 units of chemicals for 1 unit of autos
D) 0.33 and 0.5 units of autos for 1 unit of chemicals
 
17. Refer to the above tables. Assume that prior to specialization and trade Germany and the United States both choose production possibility C. Now if each specializes according to its comparative advantage, the resulting gains from specialization and trade will be: 
A) 8 million units of autos
B) 6 million units of autos
C) 6 million units of autos and 8 million units of chemicals
D) 8 million units of autos and 6 million units of chemicals
 
18. Refer to the above tables. Suppose that each nation specialized in producing the product for which it has a comparative advantage, and the terms of trade were set at 3 units of chemicals for 1 unit of autos. In this case, Germany could obtain and consume a maximum combination of 8 million units of autos and: 
A) 12 million units of chemicals
B) 24 million units of chemicals
C) 36 million units of chemicals
D) 48 million units of chemicals

Chap37 review Key
 
1. D
 
2. C
 
3. D
 
4. B
 
5. C
 
6. C
 
7. C
 
8. C
 
9. B
 
10. B
 
11. A
 
12. B
 
13. A
 
14. D
 
15. C
 
16. C
 
17. B
 
18. C