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Ch2Q - ECO 105 Principles of Economic Theory Chapter 2...

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ECO 105: Principles of Economic Theory Chapter 2 Sample Multiple-Choice Questions 1. What is the “principle of comparative advantage”? a) One’s comparative advantage in production tends to increase the more one produces. b) A country should specialize in the production of a good if the good's opportunity cost is lower than in the other country. c) Countries benefit from self-sufficiency since they do not have to rely on foreign producers. d) People do what is most beneficial for themselves. 2. Assume that with its current stock of resources and level of technology, the United States can produce either 50 million tons of wheat or 2 million bottles of vodka (assume also that opportunity costs are constant). What is the opportunity cost of producing each bottle of vodka? 3. In order for two countries to gain from exchange: 4. For trade to be mutually beneficial, what must the relationship be between the terms of trade and each country’s opportunity cost ratios? 5. Specialization in production can result in increased efficiency, but also entails certain disadvantages including: a) the boredom associated with many specialized jobs. b) a decrease in the interdependence of individuals in the economy. c) a reduction in the amount of surplus outputs. d) an increased reliance on the barter system.
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