Tutorial Chapter 7

PART A

6) China has a comparative advantage in textiles and an absolute advantage in both textiles and
radios. Japan has a comparative advantage in radios. According to this scenario
A) Japan should import both radios and textiles.
B) China should export both radios and textiles.
C) China should export textiles and import radios.
D) Japan should export textiles and import radios.

7) Country A has a comparative advantage compared to Country B in the production of shoes if

A) Country A can produce shoes at a lower monetary cost than Country B can.
B) Country A can produce shoes using fewer resources than Country B can.
C) the demand for shoes is higher in Country A than in Country B.
D) Country A can produce shoes at a lower cost in terms of other goods than Country B can.

8) According to the theory of comparative advantage, a country should

A) specialize in and export goods with the highest opportunity cost.
B) specialize in and export goods with the lowest production cost.
C) specialize in and export goods with the lowest opportunity cost.
D) specialize in and export goods with the lowest average cost.

9) When one country can produce a product at a lower cost in terms of other goods, that country is
said to have
A) an absolute advantage.
B) a comparative advantage.
C) a productive advantage.
D) an unfair advantage.

10) The United States imports televisions from Japan and Japan imports computer chips from the
United States. If the theory of comparative advantage guides trade between the two countries, it must
be true that
A) the opportunity cost of producing televisions in Japan is higher than that in the United States.
B) the opportunity cost of producing computer chips in the United States is higher than that in Japan.
C) the United States has comparative advantage in producing computer chips.
D) the United States has comparative advantage in producing televisions.

11) If Russia has a comparative advantage in the production of wheat and China has a comparative
advantage in the production of textiles, then
A) neither country has anything to gain from specialization and trade.
B) it is reasonable to expect that specialization will benefit both countries, but trade will not.
C) it is reasonable to expect that specialization and trade will benefit both countries.
D) it is reasonable to expect that trade will benefit both countries, but specialization will not.

12) If Brazil has a comparative advantage in the production of coffee compared to the United States,
then
A) Brazil also has an absolute advantage in the production of coffee.
B) the United States has an absolute advantage in the production of coffee.
C) Brazil can produce coffee at a lower opportunity cost than the United States.
D) the United States cannot produce coffee.
13) The United States has a comparative advantage in the production of wheat, and Haiti has a
comparative advantage in the production of sugar. If both countries specialize based on the theory of
comparative advantage,
A) only the production of wheat will increase.
B) the production and consumption of both goods will increase.
C) only the production of both goods will increase.
D) only the consumption of both goods will increase.

14) Suppose that Japan and India are both engaged in the production of radios and rice, and that
Japan has an absolute advantage in the production of both goods. If India has a lower opportunity
cost for producing rice, then
A) India has a comparative advantage in rice production, but there will be no gains from
specialization and trade.
B) Japan has a comparative advantage in the production of both goods.
C) India has a comparative advantage in the production of rice, but it is outweighed by Japan's
absolute advantage in rice production.
D) India has a comparative advantage in the production of rice, and specialization and trade between
the two countries can be mutually beneficial.

15) If the slopes of the production possibility frontiers involving sugar and rice in countries A and B
are equal,
A) the opportunity cost of producing sugar is less in Country A.
B) the opportunity cost of producing rice is less in Country B.
C) specialization does not benefit either country.
D) each country will produce identical quantities of sugar and rice.

16) Suppose that Argentina and Chile are both engaged in the production of copper and wheat, and
that Argentina has an absolute advantage in the production of both goods. If Chile has a comparative
advantage in the production of copper, then Chile
A) has a lower opportunity cost for copper, which means that it should specialize in production of
copper and engage in trade.
B) has a lower opportunity cost for producing copper, but specialization is not feasible because
Argentina has a lower monetary cost of copper production.
C) has a higher opportunity cost for copper, which means it should specialize in the production of
wheat and engage in trade.
D) should continue to produce copper, but only for domestic consumption, because trade is not a
viable option.

Refer to the information provided in Table 18.1 below to answer the questions that follow.

Table 18.1
17) Refer to Table 18.1. In Mexico, the opportunity cost of 1 bushel of bananas is
A) 1/2 bushel of oranges.
B) 1 bushels of oranges.
C) 2 bushel of oranges.
D) 5 bushels of oranges.

18) Refer to Table 18.1. In Guatemala, the opportunity cost of 1 bushel of oranges is
A) 1/2 bushel of bananas.
B) 1 bushels of bananas.
C) 2 bushel of bananas.
D) 4 bushels of bananas.

19) Refer to Table 18.1. In Mexico, the opportunity cost of 1 bushel of oranges is
A) 1/2 bushel of bananas.
B) 1 bushels of bananas.
C) 2 bushel of bananas.
D) 5 bushels of bananas.

20) Refer to Table 18.1. In Guatemala, the opportunity cost of 1 bushel of bananas is
A) 1/2 bushel of oranges.
B) 1 bushels of oranges.
C) 2 bushel of oranges.
D) 4 bushels of oranges.

21) Refer to Table 18.1. The opportunity cost of producing a bushel of oranges in Mexico is
A) twice as much as that in Guatemala.
B) half as much as that in Guatemala.
C) the same as that in Guatemala.
D) four times as much as that in Guatemala.

22) Refer to Table 18.1. Guatemala has

A) a comparative advantage in orange production.
B) an absolute advantage in orange production.
C) an absolute advantage in banana production.
D) a comparative advantage in banana production.

23) Refer to Table 18.1. Guatemala has

A) a comparative advantage but not an absolute advantage in orange production.
B) a comparative advantage but not an absolute advantage in banana production.
C) an absolute advantage and a comparative advantage in banana production.
D) an absolute advantage and a comparative advantage in orange production.

24) Refer to Table 18.1. Mexico has

A) a comparative advantage but not an absolute advantage in orange production.
B) a comparative advantage but not an absolute advantage in banana production.
C) an absolute advantage and a comparative advantage in banana production.
D) an absolute advantage and a comparative advantage in orange production.
25) Refer to Table 18.1. Guatemala should specialize in and export ________, and Mexico should
specialize in and export ________.
A) oranges; oranges
B) bananas; bananas
C) bananas; oranges
D) oranges; bananas

26) Refer to Table 18.1. Before specialization, Mexico produces 120 bushels of oranges and 80 bushels
of bananas, and Guatemala produces 40 bushels of oranges and 20 bushels of bananas. After
specialization, the increase in orange production is
A) 10 bushels of oranges.
B) 20 bushels of oranges.
C) 25 bushels of oranges.
D) 40 bushels of oranges.

27) Refer to Table 18.1. Before specialization, Mexico produces 160 bushels of oranges and 40 bushels
of bananas, and Guatemala produces 30 bushels of oranges and 40 bushels of bananas. After
specialization, the increase in banana production is
A) 10 bushels of bananas.
B) 15 bushels of bananas.
C) 20 bushels of bananas.
D) 40 bushels of bananas.

28) Refer to Table 18.1. For both countries to benefit from trade, the terms of trade must be between
________ bushel(s) of oranges to bushel(s) of bananas.
A) 1:1/2 and 1:4
B) 2:3 and 2:1
C) 1:1 and 1:1/2
D) 1:1 and 1:2.

Refer to the information provided in Figure 18.2 below to answer the questions that follow.

Figure 18.2
53) Refer to Figure 18.2. The opportunity cost of a truck is ________ car(s) in the United States and
________ car(s) in England.
A) 6; 4
B) 4; 1.5
C) 4; 6
D) .25; 1.5

54) Refer to Figure 18.2. The theory of comparative advantage suggests that
A) England should import trucks and export cars.
B) England should export both trucks and cars.
C) the United States should export both trucks and cars.
D) the United States should export cars and import trucks.

55) Refer to Figure 18.2. The opportunity cost of a car is ________ truck(s) in the United States and
________ truck(s) in England
A) 6; 4
B) 4; 1.5
C) 4; 6
D) 0.25; 0.67

56) Refer to Figure 18.2. England has

A) a comparative advantage in producing trucks.
B) an absolute advantage in producing cars.
C) a comparative advantage in producing cars.
D) no comparative advantage in producing either cars or trucks.

57) Refer to Figure 18.2. the U.S. has

A) a comparative advantage in producing trucks.
B) an absolute advantage in producing trucks.
C) a comparative advantage in producing cars.
D) no comparative advantage in producing either cars or trucks.

58) Refer to Figure 18.2. The opportunity cost of 1 ________ is 4 ________ in the United States and 1.5
________ in England.
A) car; trucks; trucks
B) truck; cars; cars
C) car; cars; trucks
D) truck; trucks; cars

59) Refer to Figure 18.2. the theory of comparative advantage suggests that
A) England should export trucks and import cars.
B) England should export both trucks and cars.
C) the United States should export both trucks and cars.
D) the United States should import cars and export trucks.

60) Refer to Figure 18.2. The opportunity cost of 1 ________ is 0.25 ________ in the United States and
0.67 ________ in England.
 A) car; truck; truck
B) truck; car; car
C) car; car; truck
D) truck; truck; car

61) Refer to Figure 18.2. England has an absolute advantage in producing

A) trucks.
B) both cars and trucks.
C) cars.
D) neither cars nor trucks.

62) Refer to Figure 18.2. The United States has an absolute advantage in producing
A) trucks.
B) both cars and trucks.
C) cars.
D) neither cars nor trucks.

PART B

1. Answer all the questions in the PowerPoint slide.

soybeans soybeans
(in Tons) (in Tons)
300 200
Kenya
LAOS

robots robots
100 50

Kenya dan Loas hanya mengeluarkan kacang soya dan robot:

i. Nyatakan Negara mana yang punyai faedah mutlak bagi kedua-dua barang
- KENYA
 ii. Nyatakan Negara mana yang punyai faedah berbanding bagi kedua-dua
barang
iii. Kirakan kos melepas bagi mengeluarkan kedua-dua barang

Negara Soybeans Robots Kos lepas menghasilkan Kos lepas menghasilkan

(in tons) (units) 1 soybeans (in tons) 1 robots
Kenya 300 100 100/300 = 0.33 robots 300/100 = 3 soybeans
Laos 200 50 50/200 = 0.25 robots 200/50 = 4 soybeans
Jumlah 500 150 - -

- Laos meneikmati faedah berbanding dalam pengeluaran soybeans (in tons)

- Kenya menikmati faedah berbanding dalam pengeluaran robots

iv. Apakah kadar pertukaran yang menguntungkan kedua-dua Negara

Kadar pertukaran yang dipersetujui ialah 1 soybeans = 0.3

Negara Soybeans ( in tons) Robots (units)

Kenya - 100 x 2 = 200
Laos 200 x 2 = 400 -
Jumlah 400 200
Jadual selepas pengkhususan

Negara Soybeans ( in tons) Robots (units)

Kenya 200 60
Laos 200 140
Jumlah 400 200

v. Apakah kesan dari PA.

- Kenya mengalami penurunan penggunaan dalam kedua-dua barang.
- Laos mengalami peningkatan dalam penggunaan kedua-dua barang.
- Faedah berbanding memberi faedah yang lebih kepada Laos berbanding Kenya.