1.

4 Comparative Advantage and Trade

Multiple-Choice
1. A country can consume beyond its present production possibilities curve when it
(A) trades with other countries, thus taking advantages of different opportunity costs
(B) reduces unemployment, thus increasing output
(C) experiences decreasing opportunity costs.
(D) faces an upward-sloping production possibilities curve
(E) faces a downward-sloping production possibilities curve

2. A farmer in Country A can harvest 20 bushels of wheat or 10 bushels of corn in a

day, while a farmer in Country B can harvest 8 bushels of wheat or 8 bushels of corn
in a day. If Country A and Country B specialize and trade, Country A will
(A) export wheat and import corn
(B) export corn and import wheat
(C) export both wheat and corn
(D) import both wheat and corn
(E) benefit more from trade than will Country B

3. The diagram above shows the production possibilities curves for two countries,
Country X and Country Y. Assume that both countries use equal amounts of resources
in production. If the two countries engage in trade, both would be better off under
which of the following conditions?
(A) Country X produced both cars and planes, because it has an absolute advantage in
the production of both goods.
(B) Country Y produced both cars and planes, because it has a comparative advantage
in the production of both goods.
(C) Country X specialized in the production of cars, because it has an absolute
advantage in the production of cars.
(D) Country X specialized in the production of cars, because it has a comparative
advantage in the production of cars.
(E) Country Y specialized in the production of cars, because it has a comparative
advantage in the production of cars.

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4. A professor hires two aides, assigning them the tasks of reading student papers and
of typing lecture notes on a computer. One of the aides, Ben, can read 1 page of a
student paper per minute or type 50 words of lecture notes per minute, and the other
aide, Ann, can read 3 pages of a student paper per minute or type 60 words of lecture
notes per minute.
Which of the following statements is true?
(A) Ann has a comparative advantage in reading student papers, and Ben has a
comparative advantage in typing lecture notes.
(B) Ann has an absolute advantage in reading student papers, and Ben has an absolute
advantage in typing lecture notes.
(C) Ben has a comparative advantage in reading student papers, and Ann has a
comparative advantage in typing lecture notes.
(D) Ben has a comparative advantage in both reading student papers and typing
lecture notes.
(E) Ben has an absolute advantage in both reading student papers and typing lecture
notes.

5. According to the information in the table above, which of the following statements
is true if both countries have the same number of workers?
(A) Country A has both an absolute and a comparative advantage in manufactured
goods.
(B) Country A has an absolute advantage in manufactured goods but a comparative
advantage in service goods.
(C) Country B has a comparative advantage in service goods but no absolute
advantage in either good.
(D) Country A has an absolute advantage in service goods but a comparative
advantage in manufactured goods.
(E) Country B has an absolute advantage in manufactured goods, but without more
information, it is not possible to tell in which product it has a comparative advantage.

6. Cindy and Martin both sew t-shirts in a small factory. Using the same resources,
Martin can sew twelve t-shirts and Cindy can sew nine t-shirts in one day. Which of
the following can be concluded from the given information?

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(A) Martin has a higher opportunity cost of sewing t-shirts than Cindy does.
(B) Cindy has a comparative advantage in sewing t-shirts.
(C) Martin has a comparative advantage in sewing t-shirts.
(D) Martin has an absolute advantage in sewing t-shirts.
(E) Cindy has an absolute advantage in sewing t-shirts.

7. Assume both Italy and Greece produce only two goods: wine and olive oil. If Italy
holds a comparative advantage in the production of wine, then which of the following
statements is NOT true?
(A) Italy must hold an absolute advantage in the production of wine.
(B) Greece holds a comparative advantage in the production of olive oil.
(C) Italy's opportunity cost of producing one additional unit of wine is lower than
Greece's.
(D) Greece's opportunity cost of producing one additional unit of olive oil is lower
than Italy's.
(E) If trade is open between them, these countries have an incentive to trade.

8. Both Amy and Brad produce and consume apple pie and ice cream. In one hour,
Brad makes five apple pies or ten gallons of ice cream while Amy makes fifteen apple
pies or fifteen gallons of ice cream. Based on the above information, one can correctly
conclude that
(A) Brad has an absolute advantage in making ice cream and will sell ice cream to
Amy
(B) Brad has a comparative advantage in making ice cream and will sell ice cream to
Amy
(C) Brad does not have a comparative advantage in making either good and will not
trade with Amy
(D) Brad has an absolute advantage in making apple pies but a comparative advantage
in making ice cream
(E)

9. Dana and Robin produce smoothies and pizza. In one hour Dana can make 20
smoothies or 10 pizzas. In one hour Robin can make 18 smoothies or 6 pizzas. Which
of the following statements is true?
(A) Robin has an absolute advantage in making smoothies and a comparative
advantage in making pizzas.
(B) Robin has both an absolute advantage and a comparative advantage in making
pizzas.

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(C) Dana has a comparative advantage in making both smoothies and pizzas.
(D) Dana has a comparative advantage in making pizzas, and Robin has a
comparative advantage in making smoothies.
(E) Dana has a comparative advantage in making smoothies, and Robin has a
comparative advantage in making pizzas.

10. If nations specialize according to their comparative advantage and engage in

international trade with each other, each nation can
(A) produce outside its production possibilities curve
(B) consume outside its production possibilities curve
(C) shift its production possibilities curve to the right
(D) become more self-sufficient
(E) produce more of all goods

11. Which of the following statements regarding specialization and trade is true?
(A)
showing an increase in productive capacity.
(B) With specialization and trade, a country will produce a combination of goods
beyond its production possibilities curve.
(C) To gain from trade, countries specialize in producing goods and services in which
they have an absolute advantage.
(D) With specialization and trade, a country can consume beyond its production
possibilities curve.
(E) A country must have both the comparative and the absolute advantage in a product
to specialize and gain from trade.

12. Suppose that in one week Sam can knit 5 sweaters or make 4 blankets and Rob
can knit 10 sweaters or make 6 blankets. Which of the following is true?
(A) Sam has an absolute advantage in making blankets.
(B) Sam has an absolute advantage in knitting sweaters.
(C) Sam has a comparative advantage in making blankets.
(D) Sam has a comparative advantage in knitting sweaters.
(E) Sam has neither a comparative nor an absolute advantage in knitting sweaters or
making blankets.

13. The chart below shows the number of resource units the countries Gamma and
Omega must use to produce one unit of food or one unit of clothing.

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Which of the following statements is true according to the chart above?
(A) Trade should take place, with Gamma specializing in clothing production and
Omega specializing in food production.
(B) Trade should take place, with Gamma specializing in food production and Omega
specializing in clothing production.
(C) Each country should devote half of its resources to food production and half to
clothing production and not trade.
(D) Since Omega can produce both food and clothing using fewer resources than
Gamma, it cannot benefit from trade with Gamma
(E) Since Gamma can produce both food and clothing using fewer resources than
Omega, it cannot benefit trade with Omega.

14. The table above shows the maximum number of palm leaves or coconuts that
Robert and Frank can pick respectively in a single day. Which of the following is
true?
(A) Robert has a comparative advantage in picking coconuts.
(B) Frank has a comparative advantage in picking palm leaves.
(C) Robert and Frank can both benefit from trade with each other if 1 coconut is
traded for 1 palm leaf.
(D) Robert and Frank can both benefit from trade with each other if 1 coconut is
traded for 3 palm leaves.
(E) Robert and Frank can both benefit from trade with each other if 1 coconut is
traded for 5 palm leaves.

15. The table above shows the amount of labor required to produce a unit of corn and
a unit of shoes in Brazil and Spain. If both countries have equal numbers of workers,
what pattern of international trade between Brazil and Spain is most likely to emerge?

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(A) Brazil will export both corn and shoes.
(B) Spain will export both corn and shoes.
(C) No mutually beneficial trade can occur.
(D) Brazil will export corn and import shoes.
(E) Brazil will import corn and export shoes.

16. The table below shows the number of hours it takes for Kim to install a computer
or to paint a garage and for Maria to install a computer or to paint a garage.

If tasks are assigned according to comparative advantage, which of the following is

true?
(A) Kim should perform both tasks.
(B) Maria should perform both tasks.
(C) Kim should install computers and Maria should paint garages.
(D) Kim should paint garages and Maria should install computers.
(E) Kim and Maria should both install computers.

17. According to the data above, if Mr. X and Ms. Y have the opportunity to trade,
which of the following will be mutually beneficial?
(A) Ms. Y sells shoes to and buys bread from Mr. X.
(B) Ms. Y sells bread to and buys shoes from Mr. X.
(C) Ms. Y sells both bread and shoes to Mr. X.
(D) Ms. Y buys both bread and shoes from Mr. X.
(E) Ms. Y and Mr. X do not trade with each other.

18. Using the same amount of time and resources, Jack can assemble either 10 bikes
or 5 computers, whereas Sam can assemble either 5 bikes or 5 computers. Based on
the data, which of the following statements is correct?
(A) Sam has an absolute advantage in assembling bikes.
(B) Sam has an absolute advantage in assembling computers.
(C) Sam has a comparative advantage in assembling bikes.
(D) Jack has a comparative advantage in assembling bikes.

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(E) Jack has a comparative advantage in assembling both bikes and computers.

19. The table below shows the total labor hours required to produce a unit of gold and
the total labor hours required to produce a unit of sugar in Portugal and Spain,
respectively.

Which country has an absolute advantage in sugar production?

(A) Neither Spain nor Portugal, because both require fewer labor hours to produce a
unit of gold than to produce a unit of sugar.
(B) Spain, because the opportunity cost of sugar in terms of gold is lower.
(C) Spain, because it requires fewer total labor hours than Portugal to produce a unit
of sugar.
(D) Portugal, because it requires more total labor hours than Spain to produce a unit
of sugar.
(E) Portugal, because it takes only a quarter of an hour to produce a unit of sugar.

20. In the country Beta it takes two hours of labor to produce a unit of tea and four
hours of labor to produce a unit of bread. In the country Zeta it takes three hours of
labor to produce a unit of tea and nine hours of labor to produce a unit of bread.
Which of the following is true?
(A) Country Zeta has an absolute advantage in producing both tea and bread.
(B) Country Zeta has an absolute advantage and a comparative advantage in
producing tea.
(C) Country Beta has an absolute advantage and a comparative advantage in
producing tea.
(D) Country Beta has the lower opportunity cost in producing bread and therefore a
comparative advantage in producing bread.
(E) Country Beta, with trade, will export both tea and bread to country Zeta.

Country Opportunity Cost of 1 Ton of Apples Opportunity Cost of 1 Ton of Oranges

X 1 ton of oranges 1 ton of apples
Y 2 tons of oranges 0.5 ton of apples
21. The table above shows the opportunity costs of producing apples and oranges in
Countries X and Y. Which of the following can be concluded based on the data given
in the table?
(A) Country Y has an absolute advantage in producing both goods.

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(B) Country Y has a comparative advantage in producing both goods.
(C) Country X has an absolute advantage in producing both goods.
(D) Country X has a comparative advantage in producing oranges.
(E) Country X has a comparative advantage in producing apples.

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