Chapter 3 Review Question Answers

1.	The production possibilities frontiers used to explain trade in the text are straight lines because: a. the author assumes the farmers can switch at a constant rate from producing meat to producing potatoes.

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2.	The principle of Absolute Advantage refers to the situation in which one producer: b. can produce a good using fewer resources than other producers.

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3.	The principle of Comparative Advantage refers to the situation in which one producer: a. has a lower opportunity cost than other producers in the production of a good.

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4.	Which of the following is true regarding the principle of Absolute Advantage? c. Nations should specialize in producing those goods for which they have an Absolute Advantage.

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5.	Which of the following is true regarding the principle of Comparative Advantage? b. Nations should specialize in producing those goods for which they have the lowest opportunity cost.

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6.	The boy next door has offered to mow Tiger Woods' lawn. It will take this boy twice as long as Tiger Woods to mow the lawn. Would Tiger Woods let the boy mow his lawn, instead of doing it himself? a. Yes, as long as the boy's opportunity cost is less than half of Tiger Woods' opportunity cost.

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7.	Suppose that engaging in free trade means we have to stop making cars, which will cause bankruptcies and will make people lose their jobs. Is it still worth having free trade? b. Yes, because the gains outweigh the losses: new businesses and new jobs will flourish in other industries.

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8.

Suppose that Jill can type 10 pages per hour in the computer, while Jim can only type 8. Further suppose that Jill can review 5 articles per hour while Jim can only review 2. If they are working on a final project together, who should specialize in what task in order to be as productive as possible? b. Jill should specialize in reviewing articles and Jim in typing.

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9.	Suppose that Jill can type 10 pages per hour in the computer, while Jim can only type 8. Further suppose that Jill can review 5 articles per hour while Jim can only review 2. Based on this, we can say that: b. Jill has an absolute advantage over Jim in reviewing articles.

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10.	The principle of Comparative Advantage argues all of the following, EXCEPT: c. free trade allows producers to specialize.