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Chpt_3 Gains from Trade - Chpt 3 Gains from Trade...

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Chpt 3 Gains from Trade True/False Indicate whether the statement is true or false. ____ 1. A production possibilities frontier is a graph that shows the combination of outputs that an economy should produce. ____ 2. Production possibilities frontiers cannot be used to illustrate tradeoffs. ____ 3. Trade allows a country to consume outside its production possibilities frontier. ____ 4. For both parties to gain from trade, the price at which they trade must lie exactly in the middle of the two op- portunity costs. ____ 5. Goods produced abroad and sold domestically are called exports and goods produced domestically and sold abroad are called imports. Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 6. When can two countries gain from trading two goods? a. when the first country can only produce the first good and the second country can only produce the second good b. when the first country can produce both goods, but can only produce the second good at great cost, and the second country can produce both goods, but can only produce the first good at great cost c. when the first country is better at producing both goods and the second country is worse at producing both goods d. Two countries could gain from trading two goods under all of the above conditions. ____ 7. A production possibilities frontier is bowed outward when ____ 8. Assume for Namibia that the opportunity cost of each hut is 200 bowls. Then which of these pairs of points could be on Namibia's production possibilities frontier? ____ 9. Suppose a gardener produces both green beans and corn in her garden. If she must give up 14 bushels of corn to get 5 bushels of green beans, then her opportunity cost of 1 bushel of green beans is
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____ 10. The principle of comparative advantage does not provide answers to certain questions. One of those ques- tions is a. Do specialization and trade benefit more than one party to a trade? b. Is it absolute advantage or comparative advantage that really matters? c. How are the gains from trade shared among the parties to a trade? d. Is it possible for specialization and trade to increase total output of traded goods?
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